The San Francisco Bay Area is in the midst of a severe housing affordability and displacement crisis, the result of years of inadequate public policy, a clash of generational attitudes, and ubiquitous obstruction of new housing projects. At the BIL Oakland: Recession Generation conference, hosted by EarthSharing.org on July 9, a panel of four housing advocates shared their thoughts on where to go from here.
Zac Shore, Stephen Barton, Alex Lofton and Tim Colon described a multi-faceted crisis requiring concurrent and complementary solutions.
Zac Shore is the director of development for Panoramic Interests, a construction company focussed on affordable student housing, workforce housing and homeless housing in San Francisco.
The company has a modular construction ethos that crystallized when they traveled to the U.K. and witnessed the construction of 190 apartments in eight days using shipping containers.
“When we saw that, we were convinced, and now we’re starting to build with it on a large scale in San Francisco.”
Panoramic Interests has built hundreds of apartments for students and workers, and is now beginning to build for the homeless. Shore cited demonstrable cost savings associated with housing homeless, cutting down on chronic use of emergency services and offering an economic incentive alongside the humanitarian one.
Stephen Barton represented the Bay Area Community Land Trust and the Committee for Safe and Affordable Homes. Barton has a PhD in city and regional planning from the University of California, Berkeley, and was director of the Housing Department and deputy director of the Rent Stabilization Program in Berkeley, California before retiring recently. He has written widely on housing policy and co-authored Common Interest Communities: Private Governments and the Public Interest.
Barton argues that new construction does not have the ability to solve the Bay Area’s housing crisis.
“It’s not to say that increasing the housing supply is not important, because it’s desperately important,” he said. “But of course we have Prop. 13 here in California and its progeny designed to protect real estate investors’ windfall profits, and of course encouraging land speculation because people who own vacant and under-utilized land hardly pay anything in taxes.”
Using taxes to treat rental property like a business rather than personal real estate would be a step in the right direction, “to recapture through taxation the value that we and those who came before us have created,” Barton said.
“If you applied a two percent tax to rental property in the whole Bay Area, you would raise $500 million a year and it could lead to construction of as many as 50,000 affordable apartments.”
“About half of the rent that tenants pay in the Bay area is not, in fact, necessary to profitably operate and maintain the housing once it’s been built and the construction costs are amortized. Instead, it’s basically an admission charge – ‘welcome to the magic kingdom, here’s how much you have to pay to be here in the Bay area’.”
Alex Lofton is a co-founder of Landed San Francisco, a community-based brokerage organization that raises capital from investors interested in local real estate, and uses that money to support first home-buyers with down payments.
“Our whole system is set up on the intergenerational transfer of wealth: you’ve got to ask your mom or you dad, or brother or sister, or grandparents to help you buy your first house, especially in expensive places. So we just say ‘Why can’t there be other options than mom and dad…to borrow that money?’”
“You live in a place like this and you question if you’ll ever become an owner…the leap from renter to owner is just impossible.”
While affordability was the main problem with Bay Area housing, requiring greater supply and higher incomes, another way forward was thinking about the concept of ownership differently, and coming up with creative ways for whole communities to help people get started in the property market.
“There isn’t a silver bullet, it does take a lot of solutions.”
Tim Colen, at the time of conference, was executive director of the San Francisco Housing Action Coalition, an organization promoting well-designed and well-located housing. Prior to this, he was president of the Greater West Portal Neighborhood Association, and spent 25 years working as geologist.
San Francisco is cursed by having a red-hot economy, and highly-skilled workers flooding into a city that has a history of under-producing the amount of housing it needs.
“We have chosen policies for the last two or three decades that have led us to this position where our population is growing by about 10,000 residents per year… a city that has a historic production rate [of houses] somewhere around 1700-1800 units a year.”
“It’s already a city that’s become hostile to the young, young families, seniors, immigrants, the artists, the weirdos, the hippies, everybody. It’s going in the direction of becoming a luxury resort with a certain amount of housing we can afford to subsidize.”
In Sacramento, liberal democrat Governor Brown has taken a bold step by introducing “by-right housing”, whereby if certain conditions are met by developers then new builds cannot be obstructed.
“It’s the first tool we’ve seen in ages that says ‘you can’t appeal projects to death anymore’,” Colen said.
The dominant conversation around housing has been one of intergenerational change, and the desire of previous generations to keep things the way they are, Colen said, and this has tipped the balance of power toward those who say no to development and increase construction costs.
“We’re strangling ourselves,” he said. “There is not enough money in the world to subsidize our way out of this problem.”
This panel discussion highlights a struggle between established residents and newcomers, who should be joining forces against an entirely different threat. Renters are being squeezed out of the Bay as prices surge, while would-be newcomers, many of whom are tech workers, are kept out by the same phenomenon. Both blame each other, yet it is landowners who are making a killing off the skyrocketing costs for space in the Bay Area.
Yes, tech workers drive up the cost of land, but freezing new construction also makes apartment rents artificially high. Both groups are right, but it is unfettered and untaxed landlordism that is the real problem.
There is a way to help protect those in danger of being forced out of the Bay, while also giving access to newcomers in innovative industries: tax the rising value of land and reduce taxes on working and exchanging. A citizen’s dividend paid out of the revenue from a land value tax, what some call a basic income, should be given to everyone to be spent as they wish. They would use this money to subsidize their apartment, while construction could boom in downtown San Francisco and elsewhere in the Bay. With more people able to fill the new units in the central locations, this would take pressure off areas even slightly outside the central business district. This in turn would retard the rise in rent from what it otherwise would be, while putting more money in vulnerable people’s pockets to secure housing.
The lessons of the 2008 financial crisis are quickly being forgotten. That market collapse was precipitated by an extraordinary rise of US land values, which was driven by the emergence of subprime lending on a mass scale.
Prices of residential and commercial real estate are once again on the rise. A major driver of this astounding rebound has been Chinese real estate investment. Chinese investors, seeking promising investments and a way to move their money out of the slowing Chinese economy, have poured $110 billion dollars into US real estate in the past five years. By contrast, the Chinese real estate market, which is putting a drag on the Chinese economy, has been called by many the largest land bubble in history. Chinese investments in the US market are inflating housing prices across the country and placing home ownership further out of reach of many Americans.
Over the past several years, Chinese investment in commercial properties has captured headlines. For example, in 2015, the Anbang Insurance Group purchased the Waldorf Astoria Hotel for $2bn and attempted to purchase Starwood Hotels for $14bn. However, the vast majority of Chinese speculative investment has been in the residential market, to the tune of over $93bn. Cities with the most rapidly rising housing costs–San Francisco, New York, Los Angeles, and Seattle–are popular markets with Chinese buyers. But as housing stock across the country continues to gain value, buyers are now turning their speculative intents to Chicago, Miami, and regions of middle America.
When people speak of rising real estate prices, they certainly aren’t talking about bricks, they are talking about land. As a consequence of all this land speculation, Americans are finding it harder to obtain affordable housing and commercial space, and not only because of rising prices. Close to 70% of Chinese buyers pay cash, which is more appealing to sellers because deals can close much faster. This puts US residential buyers who require a mortgage at a disadvantage. Bidding wars with deep-pocketed foreign speculators also has the effect of pressuring US buyers with more limited liquid assets to sign off on larger mortgages than they can financially handle.
Prospective home buyers are not the only ones feeling the crunch. As homeownership becomes more unaffordable, the number of people in the rental market increases, driving up rents across the country. In 2016, rent increases are expected to outpace wage increases by about one percentage point. Faster than the general rate of inflation.
The periodic bubbles in real estate markets are a symptom of this rush to pocket the rising value of land, whether by foreigners or citizens. So far, the United States is not taking steps to curb either domestic or foreign speculation in real estate. Instead, Congress is going in the opposite direction by encouraging foreign “investment” in US property.
An alternative to such measures, which numerous eminent economists recommend, is a tax on land values. Land value taxation (LVT) is a twist on conventional property taxation, whereby improvements to the land are not taxed, but the land itself is taxed. Proponents argue that we ought to shift as much taxes as possible away from productive activity and onto land values. While other strategies would serve to limit foreign land purchases, taxing land values would actually halt idle landholding in general by making the speculative ownership of raw or underdeveloped real estate unprofitable.
When markets are operating correctly, profits are simply a return for productive activity, not a windfall that is achieved by excluding others as with the landed gentry in the feudal era. With LVT in place, Chinese or other foreign investors who wanted to make money by purchasing land would have to actually develop that land. They would need to attract residential or commercial tenants by providing desirable amenities and reasonable rents, and shouldering the risks involved in any sort of productive activity. This would result in a growth of construction activity and an increase in US housing supply. Increased construction activity and decreased cost for commercial and residential real estate would stimulate the rest of the US economy, simultaneously decreasing unemployment and raising wages. In effect, taxation of land values would convert the current Chinese desire for US land into a sustainablemeans of growth for the US economy.
“Tiny homes,” residential structures that typically measure between 100 and 400 square feet, have been touted by some as an elegant solution to de-cluttering one’s life and embracing a minimalist lifestyle. Examples have graced the pages of every prominent home and garden magazine, and HGTV has three (yes, three!) shows dedicated to tiny homes. In San Francisco, housing activists and city planners are now looking to the tiny home movement as a potential tonic to the city’s worsening housing shortage.
With a vacancy rate at 0.3% and a population influx to the Bay Area to the tune of approximately 90,000 people per year, San Francisco, known for its stunning Victorian homes and hilly streets, is running out of housing. Chelsea Rustrum, a consultant on the sharing economy, believes that tiny home villages have the potential to increase housing inventory at a greatly reduced cost. Compared with the $1000-per-square-foot cost for traditional construction, the per-foot cost of constructing tiny houses falls between $200 and $400. Eager to develop the first tiny home village in the San Francisco Bay Area, Rustrum has assembled a team of 10 people and is scouting for a plot of land. However, she has run into a problem that plagues most new housing initiatives – zoning.
The tiny homes that Rustrum and her colleagues seek to build violate a number of common zoning rules as set by the International Code Council, a domestic trade group. Most notably, they are below the minimum square footage necessary to be classified by as a residence. Rustrum hopes to overcome such zoning obstacles through negotiations with city governments, but changes to zoning laws have become a flashpoint in the debate over the housing shortage and development in the Bay Area. Homeowners consistently try to stymie new construction because they assume that an increase in population density would decrease their own property values. (In actuality, the opposite effect has been shown to occur: increased population leads to increased land values.)
Even if zoning obstacles were overcome, could the construction of tiny home villages truly reign in the careening San Francisco rental market? Eric Fischer, a San Francisco resident, recently analyzed 30 years of rental prices (the median rent for a 1-bedroom apartment having reached an astonishing $3,500) and created a model that explains housing costs in the city. According to Fischer, it would take a 53% increase in the housing supply (200,000 new units) to reduce costs by two thirds. Given that the entire land area of the city is 7 x 7 miles, most of which is developed, tiny home villages do not pose a realistic solution in San Francisco County, because there just isn’t enough unused land to construct them on.
The Bay Area, by comparison, is comprised of multiple cities, some of which have far more available land than San Francisco. However, there is concern over the effect tiny home villages would have in these areas A criticism of proposed tiny homes developments is that, though less environmentally damaging than traditional tract home developments, they still represent a form of urban sprawl. And more sprawl is not something that the Bay Area can handle right now. The area’s burgeoning population is already crushing public infrastructure. Bay Area Rapid Transit (BART), a major transportation system, has $5 billion in unmet capital needs over the next 10 years, and interstate highway commute times are at all-time highs. Any housing solutions that place people further outside of urban centers could add pressure to already strained transportation infrastructure.
With this in mind, it would seem that any new housing construction should occur where economic activity is most concentrated: downtown San Francisco. Problematically, downtown areas tend to have the greatest land values, and traditional strategies for construction in the city center tend to be very expensive (using subsidies and eminent domain), politically treacherous (due to entrenched residential and commercial landlord interests), and ultimately ineffective. While tiny home developments might make the area more affordable for a handful of individuals and families, to effectively turn the tide of this crisis and resolve the housing shortage, government officials must take steps to build up housing inventory in urban centers, particularly in downtown areas near the business district. To this end, the city and state must consider a land value tax (LVT).
California faces a unique challenge due to the limits imposed by Proposition 13. Overcoming those challenges in the long term would require a difficult–but not impossible–voter-approved constitutional amendment to completely overhaul the property tax system. State legislators as well as regional and city planners would be remiss not to consider the solution of the LVT, which has had demonstrated success in increasing residential space the United States as well as abroad. For the moment, housing advocates have their eyes on Rustrum and her tiny home villages, a pop culture trend that could provide a short-term solution to a steadily worsening housing crisis.
Elizabeth F, of St. Louis, Missouri, is yearning for something different. “I don’t know what it is, but I just want to get out of my car for once,” she says. “I feel like I am in a cage all the time. I want my city to seem more like a neighborhood and less like a huge mesh of cul-de-sacs. I want to actually be able to walk places; to take public transit, without having to move to New York. I love St. Louis, but we have to start planning better. I just want to be able to walk to the park or the store instead of driving there. I want to see my neighbors more. I just want…more connection.”
Elizabeth is not alone. The development goals of many metro areas are changing with the times. Sprawl is out; compacted development is in. Public transit and pedestrian by-ways are taking the place of the public-private space of the personal car. Many communities are devoting more time and more planning to the process of Transit-Oriented Development (TOD). TOD focuses on building up rather than out in order to provide more walkable neighborhoods. These pedestrian-friendly neighborhoods both include a healthy mix of retail, residential, and industrial areas centered around public transit and encourage the interpersonal connection that has been lost.
City planners across the country are taking residents such as Elizabeth and others seriously and are making strides in TOD planning. Because TOD planning is unique to each region, cities and towns are learning from the implementation successes and mistakes of others, and they are creating individualized plans for future development.
This radical change in developmental demeanor has its costs–mainly the destruction of affordable housing and a lack of sustainable funding for capital improvements on public lands. The Land Value Tax can curb the potential negative consequences of TOD and ensure its success in the future.
How Do Transit Costs Affect Disposable Income in Lower-Income Households?
Residents of auto-dependent exurbs, the wealthier areas of cities that sprawl past the suburbs, spend up to 25% of their incomes on transportation costs. However, communities that have more public transit options spend considerably less on transit–only 9% in “location efficient environments.”
Lower-income households in compacted development areas retain 59% versus 43% of their disposable income. This difference goes to pay for any expense that is not transportation or housing related. As incomes decrease, available disposable income also decreases. Decreasing disposable income by even a few percentage points can be the difference between financially making it, or not, for lower-income families.
Arlington County, VA: A TOD Success Story
Arlington County, Virginia, is often cited as a successful metro area that has addressed their transit and lower-income housing issues. It has not only created an environment where affordable housing is preserved, but it has taken steps to cluster affordable units around public transit hubs.
How Does Arlington Pay for TOD?
Some of the tactics used by Arlington County include:
Federal tax credits that rely on transportation as a stipulation: HUD’s Low-Income Housing Tax Credits, which are distributed to each state, allow individual states to determine the criteria for which projects are funded. Some states use transportation as a factor in the allocation of these funds.
The Special Affordable Housing Protection District: The Arlington Special Affordable Housing Protection District mandates that affordable housing units near transportation hubs are to be replaced on a one-for-one basis in new developments.
Together, these tactics create an environment in which transportation and housing are able to develop in tandem.
Elizabeth’s hometown of St. Louis plans to mimic Arlington’s success.
Case Study: Transit and Housing Development in the St. Louis, MO, Metro Region
How can Transit-Oriented Development Planning be used to protect low-income housing units while maximizing transit options and new development?
Released in January of 2011, the (TOD): Best Practices Guide outlined the first regional attempt to marry long-term transit planning with sustainable development.
How Does St. Louis Plan to Pay for Transit-Oriented Development?
Funding is the primary killer of TOD. TOD is a good idea that, unfortunately, will remain a good idea without the money to back it. Land Value Tax could be the answer to the financing dilemma TOD-planning creates. LVT naturally incentivizing high-density development goals and provides more housing options that for lower-income families.
However, the St. Louis Metro Area plans to rely heavily on federal block grants to fund regional improvements. St. Louis also focuses on sales and property taxes as a way to fund TOD.
Avoiding Increased State Income Tax: Sales and Property Taxes
The St. Louis Metro Area has historically used sales tax to fund capital improvement projects while avoiding raising income tax. As it stands today, there are areas of St. Louis County and St. Louis City, which are burdened by sales-tax rates in upwards of 10%. Sales-tax is highly regressive and downgrades the spending power of every citizen. Sales tax is especially harmful to those who do not generate enough income to offset the tax. High property taxes come with another set of problems.
High taxes on the development of the land creates disincentives to develop the high-density, pedestrian-friendly neighborhoods that the region craves. By taxing capital improvements on the land near transportation hubs, the St. Louis stakeholders encourage blight and reduce economic competitiveness.
The primary goals of TOD are similar to the Land Value Tax. The emphasis is on creating pedestrian friendly, higher-density urban and suburban areas. TOD and LVT also protect low-income residents by reducing the amount of time and money spent on transportation. Finally, property values increase as a result of intrinsic capital-improvement incentives.
Elizabeth is optimistic about TOD planning in St. Louis. “It’s going to take a long time; it’s a huge shift in the way we all think about our neighborhoods. I’m willing to stick with the process, though,” she says. “This is my home, and I think if we do it right, we can make it whatever we want it to be.”
“Economics in support of environmentalism” – is that an oxymoron? There are economists who put down environmentalists as unwelcome intruders in social policy; there are environmentalists who file economists under “The Great Satan.” Some economists deserve it. I will show how these differences arise, and how we may compose them.
I. Worthy goals often conflict with each other
A. Corn vs. Barley
Growing barley is a worthy goal (especially if you enjoy a little beer). So is growing corn. It would be great to raise as much of each as anyone wants, but the Earth has its limits. A choice and a decision are required. People invented (or stumbled into) the discipline of economics to help with such hard choices, and to console ourselves that we are doing the right thing. The hardest choices are those regarding land use, because there is just so much. We can build more houses, cars, and boats, write more music and drama, spawn and educate more people, but we cannot make another Hudson Valley.
Barley grows on cheap land, and the demand is limited, so the best barley land is used for growing corn. Economics reconciles the competing demands and rationalizes the outcome. It defines the “highest and best use” of land as that yielding the highest net gain, the excess of revenues over costs. Economists include non-cash “service flows” among “revenues,” although they bear watching: sometimes they forget. Thus, economics shows how the market sorts and arranges land uses, giving us a corn belt, a wheat belt, and a cotton belt. Economists pride themselves on this achievement. (Some preen themselves too much, as we will see, and pride goeth before a fall.)
By the same logic, irrigated crops take land from dry-farmed crops; orchards take land from irrigated row crops; housing takes land from orchards and groves; commerce takes land from housing.
Sometimes the rich take land from the poor, provoking sympathy, strong rhetoric, and occasionally effective rear-guard resistance to such changes. Actually, a well-oiled market is often quite democratic. People of moderate income, by crowding, can outcompete those of high income for the same land, as when a Sears or Wal-mart takes the best commercial sites from a Nordstroms or Broadway; or when an old estate is subdivided into five lots per acre. This, too, provokes negative rhetoric, but developers know how to make hay out of this, and mincemeat of their opposition. At this point developers become populists and accuse preservationists and environmentalists of snobbery and elitism. We need an answer for that one if environmentalists are going to command enough popular support to win, and hold the gains. Of this, more later.
Other worthy goals that conflict are open space and water conservation. A major problem in an arid land is that much wide open space guzzles up water. Conserving open space and conserving water conflict directly. Green grass uses more water per acre than almost any farm crop except rice (and rice returns part of it downstream). In cities most water is used not for swimming pools or toilets or washing machines, but for sprinkling lawns. Cemeteries, golf courses, horse-pastures, parks, freeway banks, and the spacious tax-exempt grounds of institutions are the greatest water junkies outside of farming itself, which of course takes much more than all cities.
Something has to give. Thus far it has been wetlands that gave. Once, perhaps, we had too much wetland, but that was long ago. We cannot accommodate all those uses, and save wetlands too, just by having restaurants stop serving water, or putting bricks in toilet tanks. Those are just token or “Goo-Goo” measures for parlor reformers; they distract us from real problems, and substitute for real solutions. What is the highest and best use of water? Wetlands, maybe; more golf courses, maybe not. But we need a rule to gauge “highest and best use.” Is it the market? Read on.
B. New rules
Some of the losers in the market game are not willing to grin and bear it. Instead, they write new rules; they want to play a different game. Soilsmen did this long since. They like to classify land and rank it by its potentiality for growing crops. Farming is – to them – the ultimate value, so it is the highest and best use: cities may have what’s left over. It is perhaps poetic justice that habitat-savers are now doing the same thing to farmers. They conceive highest use as that which saves endangered species: soils and farming may be damned, right along with housing, commerce, transportation, industry, storage, water supply, waste disposal, fire control, education, religion, mining, government, national defense, recreation, and whatever else needs land. All human activities, and survival itself, need land, so that list is a long one. Each constituent of the other uses becomes an enemy.
C. Unresolved conflicts
Both Soilsmen and habitatspersons have a point, we will see, but they have a fatal weakness. Neither has a system that composes conflict with other worthy goals, including each others’. As to cities, both soilsmen and habitat-savers would direct cities away from low-cost, high-productivity land to the high-cost leftover lands. They would not make this an end in itself, of course, but it is the necessary by-product of downgrading urban usage in the competition for land.
Thus, to restore citriculture and habitat in what is now L.A. we would move the city folks to hazard-prone floodplains, steep slopes subject to fire and erosion, quake-prone fault lines and liquefiable soils, etc. We would also move them away from the center, imposing longer commutes, greater auto-dependency, longer utility lines, longer hauls to dispose of solid wastes, more air to protect, more aquifer surface to protect, more land to protect from flooding, etc.
D. Danger of isolation through overkill
Sometimes preservationism, like any good cause given power, runs completely amok and makes itself ridiculous. For example, in Downey, California, the Los Angeles Conservancy and the National Register of Historic Places are fighting hard to save – I am not making this up – a McDonald’s drive-in, complete with neon sign! They are serious! Governor Wilson weighed in with this outburst of California pride: “The modern history of McDonald’s will be as important to the cultural history of our nation as the invention of Coca Cola.” (That comparison seems apt enough.) “Preserve for posterity the home of McDonald’s golden arches!”
In Victoria, B.C., the University of Victoria bars people from 2-3 acres of its tax-free campus to preserve habitat for its nesting skylarks, an endangered species. Never mind that they are an import from England, like starlings: now they are being “preserved” to keep things natural. Likewise, a certain residence on a steep slope in the arid Malibu Hills contains an artificial pond, filled with pumped water, but adorned with reeds “to keep it natural.”
Both soilsmen and habitat-persons will become isolated and ineffective unless they forswear extremism, and modify their new rules to accommodate other worthy goals with other constituencies. Until then, they will appear to others to be single-valued ideologues, fundamentalists with siege mentalities. To succeed they – we – must learn to lead larger alliances by offering more complete philosophies and guidelines for policy.
II. The Dereliction of Economists
There is another kind of fundamentalist, the private property kind. The economics profession (my tribe) has, in recent years, largely abdicated its proper role as an arbitrator and gone over mainly to the side of private-property extremism. This is the essential meaning of “Neo-classical Economics,” which is the idiom of most discourse in the field today, both in business and in the profession.
How did economics get so twisted? Don’t blame Adam Smith, or David Ricardo, or John Stuart Mill, or John E. Cairnes, or Knut Wicksell, or Philip Wicksteed, sterling 19th Century writers. Rather, blame J.B. Clark, Karl Marx, Richard T. Ely, Alvin Johnson, Frank Fetter, Frank Knight, George Stigler, and a host of lesser figures who gradually warped economics into its present form. How did they do it?
A. Defining away land
They wiped out land, resources, nature, and the environment as a separate class for analysis. In official Neo-classical doctrine, the world is an infinite reservoir of raw land and resources. Raw land has no value until man does two things:
1. Man subjects land to private tenure. The very act of privatizing land gives it value it lacked before. Land without an owner has no value – take that, Aldo Leopold! You will find this in J.B. Clark, 1886, The Philosophy of Wealth. Clark points out that wealth is created “from the mere appropriation of limited natural gifts …” (p.10). The atmosphere as a whole, showers or breezes, “minister transiently to whomsoever they will, and, in the long run, with impartiality.” Therefore they are not wealth. Those who appropriate them create wealth by so doing. The essential attribute of wealth is “appropriability,” to create which “the rights of property must be recognized and enforced, …. Whoever makes, interprets, or enforces law produces wealth.” It follows that those who pollute the common air, or anything held in common, are not damaging anything of value, since it belongs to no one.
Clark writes of “the essential wealth-constituting attribute of appropriability.” He goes on in that vein: those who seize land and exclude others thereby produce its value. Clark founded Neo-classical economics, and is emulated closely by the “New Resource Economists” of today.
2. Man improves the raw land, pumping value into it. After that it is just like any man-made capital. Raw land has no value: God contributed nothing. Consistently with this worldview, merely eyeing the General Sherman redwood tree adds nothing to GNP, but cutting it down would add a lot. Eyeing it would only raise GNP if you had to pay for it, or had to drive a long way to get there, and bought a kewpie doll while you were there. Likewise, commuting 80 miles a day raises GNP, while finding a homesite near work lowers it.
B. Private property: from means to end
In a proper view of things, I submit, private property is a means to an end. It is not an end in itself; it needs a functional rationale. The end is to get land put to the best use. All the private land in the world was originally granted by some sovereign public person or body, mainly for that purpose, not as a welfare entitlement. Landowners and their lawyers have slyly, over time, turned the means into an end, a fetish they endow with “sanctity.” This is a term they borrowed from absolutist medieval theology. “Sanctity” means the quality or state of being holy or sacred, hence inviolable. It means property may not be challenged, or even questioned. It has become an end in itself, its own voucher. You’re not even supposed to think about it, it is above thought. Taboo!
Neoclassical economics, historically, marked the final, total surrender of the profession to this fetish. The modern economist’s view runs something like this: “I pledge allegiance to the 14th Amendment, and to the overinterpretation of private landowner supremacy for which it has come to stand.” It is ironic to recall that Radical Republicans passed that Amendment, at a time when a “Radical Republican” was one who favored freeing the slaves. The 14th Amendment was designed to protect the rights of freedmen. As interpreted now, the 14th Amendment means that The Emancipation Proclamation itself was unconstitutional! Fortunately, no one has brought that case – yet.
The Neo-classical economists’ view of their proper role is rather like that in The Realtor’s Oath, which includes a vow “To protect the individual right of real estate ownership.” The word “individual” is construed broadly to include corporations, estates, trusts, anonymous offshore funds, schools, government agencies, institutions, partnerships, cooperatives, the Duke of Westminster, the Sultan of Brunei, the Medellin Cartel, Saddam Hussein, congregations, Archbishops, families (including criminal families) and so on, but “individual” sounds more all-American and subsumes them all. This is a potent chant that stirs people to extremes of self-righteousness and siege mentality when challenged.
The resemblance between Neo-classical economics and the Realtor’s Oath is easier to understand when you learn that Professor Richard T. Ely, founder of the modern discipline of Land Economics, was heavily subsidized by the National Association of Real Estate Boards, the utilities, the major landowning railroads, and others of like mind and property interests.
When it comes to violating property rights, air pollution today is perhaps the greatest invader and confiscator of property. Where do economists stand? Once a few of them tried to say, following A.C. Pigou, “let the polluter pay,” and in parts of Europe they still do. In our modern backward thinking here at home, however, it’s not the polluter who is invading the property of others, nor the human rights of those not owning property. Rather, when you tell them to stop, the government is invading their rights. The wage-earning taxpayers must pay them to stop, else you are violating both the 14th Amendment and the “Coase Theorem,” a rationalization for polluting now dearly beloved by Neo-classical economists.
C. Leapfrogging, floating value, and compensation
The environmental damage from those attitudes might not be so bad were it not for leapfrogging, urban disintegration, and floating value. Leapfrogging is when developers jump over the next eligible lands for urban expansion, and build farther out, here and there. This has been a problem in expanding economies ever since cities emerged from within their ancient walls and stockades, but in our times and our country it has gone to unprecedented extremes, with subsidized superhighways and universal auto ownership and truck shipping.
Alfred Gobar, savvy real estate consultant from Placentia, has recorded the amount of land actually used by city and suburban dwellers for all purposes. From this, he calculates that the entire U.S. population could live in the state of Missouri (68,965 square miles). That would be at a density of 3625 people per square mile, or 5.67 per acre. That is 7683 square feet per person. On a football gridiron, this is the area from the goal to the 16-yard line.
He is not being stingy with land, at 3625 persons per square mile. The population density of Washington, D.C., is 10,000 per square mile, with a 10-story height limit, with vast areas in parks, wide baroque avenues and vistas, several campuses, and public buildings and grounds. This is also the density of Whitefish Bay, Wisconsin, a well-preserved upper-income residential suburb of Milwaukee, with generous beaches and parks, tree-lined streets, detached dwellings, retailing, and a little industry. San Francisco, renowned for its liveability, has 15,000 per square mile. More than half the land is in non-residential uses: vast parks, golf courses, huge military/naval bases, water surface, industry, a huge regional CBD, etc., so the actual residential density is over 30,000 per square mile.
On Manhattan’s upper East Side they pile up at over 100,000 per square mile. They do not crowd like this out of desperation, either. You may think of rats in cages, but some of the world’s wealthiest people pay more than we could dream about to live that way. They’ll pay over a million dollars for less than a little patch of ground: all they get is a stratum of space about 12 feet high on the umpteenth floor over a little patch of ground they share with many others. They could afford to live anywhere: they choose Manhattan, they actually like it there!
Take 10,000 per square mile as a reference figure, because it is easy to calculate with, and because it works in practice, as noted. You may observe and experience it. At that density, 250 million Americans would require 25,000 square miles, the land in a circle with radius of 89 miles, no more. That gives a notion of how little land is actually demanded for full urban use. It is 9.4% as big as Texas, 4.2% as big as Alaska, and 7/10 of 1% of the area of the United States.
And yet, the urban price influence of Los Angeles extends over 89 miles east-south-east clear to Temecula and Murrieta and beyond, at which point, however, it meets demand pushing north from San Diego. Urban valuation fever thus affects much more land than can ever actually be developed for urban use. Regardless, most owners come to imagine they might cash in at a high price, with high zoning, at their own convenience, with public services supplied by “the public,” meaning other taxpayers. This is the meaning of “floating value.”
If their land is downzoned for farming, open space, or habitat, they regard it as a “taking,” and plead the 14th Amendment. Once we buy into the Sanctity (Holiness, Sacredness) of private property, we owe them. If we think of the public’s buying large quantities of it to preserve habitat or open space, the price is already high above its aggregate value, and the new demand will push the price higher yet.
Here is a case showing how this works. The Los Angeles Metropolitan Transit Authority (MTA) needed the old Union Station, northeast of downtown in a run-down neighborhood, as the centerpiece of its new, integrated mass transit system. With the decline of interurban passenger rail traffic, the old station was unused. The owners, mainly Southern Pacific, asked more than MTA offered, so MTA invoked its power of eminent domain and condemned the land. The case went to judgement, and in 1984 the court awarded SP an amount about twice the going price for land in the area. The court’s reason was that the coming of mass transit would raise values around the new central station, and SP should be paid as much as neighboring landowners would be able to get after the station was built.
Thus, land originally granted to SP to help subsidize mass transit was used instead to obstruct and penalize mass transit. Private property had become an end in itself, Holy and Sacred, a welfare entitlement, rather than a means to an end. MTA (the taxpayers) had to pay a price for land based on the unearned increment that its own construction and operation was expected to create in the future.
Later, MTA was to stint on subway construction, resulting in subsidence on Hollywood Boulevard, but there was no stinting on paying off SP for doing nothing: the award came to $84.7 millions. This is how the 14th Amendment works in practice, making private property an end, sanctified for its own sake, rather than a means to a higher end. It makes landowners the spoiled children of the national family, inflating the cost of every program that entails acquiring land. It means there is no chance that the public, whether through government or the Nature Conservancy, can preserve more than token areas of habitat by buying it: it would bankrupt us.
D. Siege mentalities
The result of sprawl and floating value and the Sanctity of Private Property and the 14th Amendment (as construed) is to put conservationists-environmentalists-ecologists under siege. Here is a sharp, clear statement of it from Vivian Null, San Bernardino Audubon Society.
“Once humans lived in small groups surrounded by expanses of wilderness. Today, human civilization has pushed our natural world into ever smaller, fragmented pockets of deteriorating habitat. As a result, we are living in an age of mass extinction.”
I sympathize with the view expressed, and understand what outrages provoked it. When it comes to solutions, however, we have a problem. Being under siege fosters a siege mentality. “Science,” for all its virtues, can also be an ideology. To the layman, self-styled “hard” Scientists can seem more hardheaded and hardball than scientific. They can seem single-valued, self-righteous, imperious, and – dare I say it? – even a bit arrogant at times. At the same time landowners also feel under siege. You may observe how developers rage about having their land set aside for the likes of Stephens Kangaroo Rats, Three-toed Lizards, and California Gnatcatchers. The ideology of Science and the ideology of Private Property have become clashing absolutes, no more able to come to terms than Kach Movement militants can compromise with Islamic Fundamentalists. What can we do? It helps to read some history of the successful Conservation Movement of the Progressive Era.
III. Gifford Pinchot’s Winning Formula
A. Defining “Conservation”
Gifford Pinchot was a great leader of the Conservation Movement. He defined his central term, conservation, as “The greatest good for the greatest number for the longest time.” Caviling theorists sometimes pick at that famous phrase, since you cannot maximize three things at the same time, but that is unfair, since he was not being technical. He was making a speech, and obviously what he meant was that those three elements should all be considered, and none was to be slighted.
Notice especially the middle clause, for the greatest number. Conservation was not just for landowners, or any other elite. Conservation was part of the Progressive Movement, which had sprung from the Populist Movement. Social equity was at its core. Here is some more of Pinchot’s speech (to the 1st National Conservation Congress, 1909):
… the third principle of conservation. It is this: the natural resources must be developed and preserved for the benefit of the many and not merely for the profit of a few. … public action for public benefit has … a much larger part to play than was the case … before certain constitutional arrangements … had given so tremendously strong a position to vested rights and property in general. … by reason of the 14th Amendment to The Constitution, property rights in the U.S. occupy a stronger position than in any other country in the civilized world. … it becomes then a matter of multiplied importance, … when property rights once granted are so strongly entrenched, that they shall be granted only under such conditions as that the people shall get their fair share of the benefit which comes from the development of the country which belongs to us all. The time to do that is now.
You modern habitat-savers, your foes score points against you by calling you “elitists.” Sure enough, you do appear a bit above, and therefore outside the mainstream, especially when you talk down to people from the eminence of “Science.” Pinchot saw that brick coming and dodged it before it was even thrown. He teamed up with the populists; he spoke as a man for the people, even if not quite of them. Can you say the same? Is there a place in your plans, and your hearts, for Joe Sixpack?
Here is a list that the Southern California Association of Governments (SCAG) has published from its recent public opinion survey of public issues. Preserving habitat and endangered species are not even among the top 17 priorities listed by citizens. Neither are private property rights. Their top three concerns are crime, education, and jobs. Politicians have preempted the crime issue, but no one is doing a thing this year for education and jobs. Take a leaf from the successful Gifford Pinchot: team up with some populists. Move into the vacuum left behind the gale of anti-crime oratory. No one is serving the constituency for education and jobs.
Other populist issues high on the SCAG list are homelessness, affordable housing, job training, and child care.
B. Finding common ground
On what basis shall habitat-savers identify with median Americans? We share a problem: we are all victims of private property rights carried to extremes. Abraham Lincoln, the original Radical Republican, once spoke to the effect that whenever landless people cannot find work and shelter, then the rights of private property have been carried too far and must be curbed. We have seen what Gifford Pinchot said.
“… natural resources must be developed and preserved for the benefit of the many and not merely for the profit of a few. … the people shall get their fair share of the benefit which comes from the development of the country WHICH BELONGS TO US ALL.”
Belongs to us all? Was Pinchot a Communist? Not likely: he was a Republican, an active political one, twice Governor of Pennsylvania.
We have too little time together to develop that fully, but here are some ideas. First, environmentalists might rethink what we mean by “open space.” To Pinchot, “open” meant the space had public access. Today it often means the reverse: golf courses, duck clubs, sacred Indian lands, private beaches, cemeteries, farmlands, vacant speculative holdings, unpoliced parks taken over by gangs, protected and posted habitat, water from which swimmers are excluded for power boats, rights-of-way closed to hikers, University experimental plots, and so on. In this sense, there is more open land in downtown Manhattan than in many of our rural and sylvan areas. Many a water reservoir is open to beavers, ducks and geese, who routinely powder their noses there, but not to humans who seldom do, and can be trained not to.
To get more support for habitat, find ways to open it to people, putting more funds and effort into behavioral controls if necessary. In Pinchot’s day, people spoke unblushingly of “character training,” and practiced it. Pinchot himself said, “the training of our people in citizenship is as germane to it (conservation) as the productiveness of the earth.” Wilderness clubs preached and taught responsible behavior in the wilds. The Boy Scouts taught it, churches taught it, schools taught it, forest rangers taught it, camp counselors taught it, community leaders taught it: you heard it all around, and it did help shape your character. It was a great community effort, enlisting broad support and conviction. Then, in that less mobile, less commercialized, more communitarian age, social control over public behavior came naturally. We came to take it for granted, until it silently slipped away. Today it may take more conscious effort, but it was done then, it can be done now.
Second, go with the flow for economy in government. For most of our lives now, we have looked to big government to resolve disputes by buying out both parties. We would have government pay top dollar for land, if needed, and then hire scientists to manage it for habitat. Thus, both sides dream of cutting into line at the government trough: but the trough is empty, and the taxpaying public is in a foul mood. Rather, let’s look for ways to cut spending by curbing subsidies to urban sprawl. I shall return with particulars.
IV. Pinchot on “Development”
Gifford Pinchot, the father of Conservation, was not against developing land. In his own words:
” The first principle of conservation is development, the use of the natural resources now existing … for the benefit of the people who live here now. There may be just as much waste in neglecting the development and use of certain natural resources as there is in their destruction by waste. … Conservation, then, stands emphatically for the use of substitutes for all the exhaustible natural resources, … (water power and water transportation are his examples). … The development of our natural resources and the fullest use of them for the present generation is the first duty of this generation. …
In the second place conservation stands for the prevention of waste. … ”
So Pinchot was against waste, so what? Who isn’t? This could be just a banality, but he gives it a new turn. To him, waste means failing to use renewable resources. His example was hydropower, which he would substitute for coal and oil. That is not such a good example today, when we cherish our few remaining wild rivers, but today urban land makes an even better example.
“Urban land?”, you may ask. “What has urban land in common with falling water?” Economists (who are not all bad) classify urban land as a “flow resource.” They liken it to flowing water because its services perish with time, whether used or not, and we are trapped in the one-way flow of time. Likewise, urban land is not depleted by use. It is an even better example of a “flow resource” than flowing water itself, because, as we are so conscious today, “unharnessed” flowing water may have other downstream uses. Even in wasting out through the Golden Gate, it may repel salinity. The unreaped harvests of idle land, however, flow down the river and out the gates of time like lost loves dimming, and golden moments we let slip away beyond recall.
What is this “service” of urban land, that we should be mindful of it? For one thing, using central urban land conserves all the hydrocarbons and other resources otherwise needed to traverse it. Compact urban settlement is a direct substitute for oil, with all that implies – and it implies a great deal, which I will leave you to fill in.
Second, using good central land saves all the costs of settling on other land – including the cost of taking more of the shrinking habitat from endangered species. Therefore, habitat-savers should emulate Pinchot and favor development in the right places, the better to oppose it in the wrong places. This is the great lost secret of conservation our times have forgot. You cannot beat development by opposing it everywhere it pops up. People need land for all kinds of legitimate things, and they will have it. To stop urban sprawl, you must support compact, efficient urban development, including healthy, timely renewal of older cities, inner suburbs, and neighborhoods.
V. Urban Sprawl
We have met the enemy, and it is US (Urban Sprawl). Let’s analyze this beast, US.
A. Development is not identical with Sprawl
Many people carelessly equate urban growth and urban sprawl, but they are not the same, not at all. Cities may grow like the posh upper East Side of Manhattan with 100,000 per square mile, or San Francisco with 15,000, or Riverside, California with 2500, or Oklahoma City with 734. Metropolitan regions are even more varied. We have seen that 250 million Americans could fit nicely into a small part of southern California, were it compactly settled at moderate urban densities that are actually found in practice, as in the upper middle class suburb of Whitefish Bay, Wisconsin (10,000 per square mile).
Urban sprawl, which creates a psychological effect of great crowding, is not the product of development as such, but of leapfrogging. Leapfrogging means chaos, with development in the wrong places and times. Infilling, on the other hand, is anti-sprawl. It is the cure for sprawl.
B. Sprawl is not a quest for open space
A common belief is that the search of open space is the main force behind sprawl. You may test that by observing high density, cookie-cutter subdivisions scattered throughout the land. Within each such development, you are living at urban densities. It is when you get onto the freeway to commute, or shop, or take the kids to school or the dentist, or worship, that you experience open space. You experience it as a negative resource, an obstacle between where you are and where you want to go.
C. Sprawl is not the product of free choice
A favorite fallacy is that sprawl results from free individual choice. In fact, sprawl results mainly from subsidies to sprawl, enforced through taxation and/or utility rate regulation. Thus it is imposed, not freely chosen. The classic case, which exemplifies the whole genus, is postal service. It costs you 29¢ to send a letter across the street downtown, or from rural Idaho to rural Florida. The generic name for such subsidies to sprawl is “postage-stamp pricing” (a species of spatial cross-subsidy), which gives you the idea.
In British Columbia, people move around a good deal by car-ferry, because of the terrain. The Provincial Government (“The Crown Provincial”) runs the system. There are many lovely little islands in the Straits of Georgia, between Vancouver Island and the mainland, favored by the wealthy, the exclusive and reclusive. Being more sybaritic than Henry D. Thoreau, and politically puissant, they have demanded and received car-ferry service. This service costs about $10 for every $1 in revenue. The resulting deficit is covered by raising rates on the main plebeian line, Victoria-Vancouver. Naturally, these cheap ferries attract new visitors to the islands, and new demand for land there.
D. Looking for Mr. Goodbar
Here is how we get urban sprawl with leapfrogging. Remember the last time you moved and went househunting? You saw some mouthwatering homes, but they were not for sale. You had to find motivated sellers, and pick from what they offered. It’s the same with builders. They scour the exurbs seeking motivated sellers. Ideally the most motivated sellers would line up by distance from the existing city, but the market is not ideal. Each seller is moved by his personal circumstances, not the geographical location.
Potential builders are little concerned with the social costs they might impose, so long as others are to bear them. Thus, they sometimes settle for and build on steep lands (like Malibu Hills) with flammable brush and erosion problems, on flood plains (like Victoria Woods subdivision in Riverside), on soils subject to liquefaction in quakes (like Northridge), in canyons and arroyos, on lands with limited access for emergency equipment. They even build on lands without water supply, even in arid southern California, then demand water and get it, secure in the knowledge that Sacramento rejected a recent move to ban development in areas with no assured water supply.
E. The public pays twice
Let’s go back to those Channel Islands in British Columbia, with subsidized car-ferries. Naturally, as I said, these cheap ferries attract new visitors to the islands, and new demand for land there. Developers and hopeful subdividers bid up land prices. This is not what the old settlers had in mind: their environment is threatened, including the habitat of endangered species. They appeal to the Crown, which subsidizes their ferries, to help them preserve land for habitat.
They want the government to buy some of it, paying the high prices created by the ferry subsidy, to keep it from use by people who might use the ferries. Thus the government would pay twice: to subsidize the ferries, and then to retire the land at the high prices made possible by the ferries. Failing that, they want the Crown to downzone most of it. The landowners are not charged when the ferries raise their asking prices, but demand compensation when downzoned.
Here, in microcosm, is the American problem with sprawl and habitat. Multiply that ferry subsidy a thousand times, and you have the Great American System of Public Works and Services for Private Gain. First the public pays to bring urban demand to remote lands; now the landowners, the spoiled children of the national family, demand to be paid again for downzoning or selling that same land to preserve habitat. They demand payment not to cash in on the opportunities we just gave them free.
Thus far, it is true, the courts have let us downzone without compensating. However, now a storm has gathered. Proposition 300, on the ballot in Arizona, demands compensation for downzoning – it is aimed at the Clean Water Act and the Endangered Species Act. There is a movement in Congress to compensate for any Federal regulation that devalues land by more than 50%. It is led by Congressman Billy Tauzin, a Democrat from Louisiana. You can imagine what a more conservative Congress might do. Speculative landowners may soon get everything they demand, leaving heavy debts to which their light tax payments now contribute very little.
F. Proactive solutions
How do we dig out from this one? I’ll repeat: go with the flow of cutting public spending by cutting down subsidies to urban sprawl. They are a major source of the problem. We’ll never win the environmental fight until those subsidies are withdrawn.
A second proactive solution is to motivate and help the owners of good land to sell or develop it. To help them, make infilling a positive goal. If you put impost fees on new buildings, do so only in outlying areas that require new public services, not on new buildings that help renew places like South Central L.A. If you ration sewer hookups, save them for central land with street improvements already in place.
Those are the carrots. A good stick is also needed. We have seen how leapfrogging results from the scattered locations of motivated sellers. We can motivate sellers near-in, and in compact increments as we expand spatially, by raising land taxes there. Proposition 13 makes this difficult, but not impossible: many special assessments have the essential motivating quality of land taxes, with a different legal form, that exempts them from Proposition 13.
I could wax rhapsodic about the results to expect from such taxation, but have done so elsewhere and will leave it with a word: visit Sydney, Adelaide, Brisbane, Copenhagen, or Johannesburg, which have made use of this principle to excellent effect.
VI. Dig deep
These are basic issues, and call for bold actions. Do not waste your time on wimpish meliorism, or “Goo-goo” thinking. For example:
It is said we need a land use inventory. We already have lots of them: people have been classifying land for decades. The question is, what shall we do with them?
It is said we need “risk ratings.” These are subject to manipulation and juggling, like benefit/cost analyses of recent ill fame. The question is, who will control the ratings, and to what ends?
It is said we need fire models. We have fire models; they were already chic in 1950. The question is, how to keep scattered homes out of fire-prone areas, where they make prescribed controlled burning nearly impossible. The question is how to keep the State and the fire insurance industry from cross-subsidizing these homes by averaging their risks in with others.
Rather, let us study how to emulate the model of Butchart Gardens, near Victoria, B.C. Butchart doesn’t sound like a gardener’s name, and sure enough, Mr. Butchart was a hardrock miner who attacked the earth and left a great ugly gash in it. Ah, but Mrs. Butchart, she wanted space for a garden, so she made one there. She rediscovered the truth that land is not just the matter that occupies space, it is space, always renewable and reclaimable. Now Butchart Gardens is one of the world’s great beauty spots, drawing visitors from everywhere – in the summertime you hear every language there. Our decayed central cities, too, may bloom again like Mrs. Butchart’s garden. Let us make it our model.
This paper was presented by professor Mason Gaffney at Community Stewardship of Environmental Resources, a program sponsored by the Community Regional and Environmental Studies Program, Bard College, Annandale-on-Hudson, NY, 24 October 1994