[Note: To follow is part 2 an excerpt of a radio show interview conducted by Peter L. Mosca, host of Income Property Investment Talk with the Cato Institute's Senior Fellow Randal O'Toole who discusses a new study that examines how restrictive government policies choked off growth, encouraged localized housing bubbles, and triggered the current financial crisis. To read part 1, please click < a href=http://realtytimes.com/rtpages/20091105_restrictive.htm target=_blank>here. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/100709.]
Mosca: One myth we need to talk about is that people don't want low density real estate, that they want, and we should be building, higher density properties. Can you talk a little bit about that myth?
O'Toole: The urban planners who are promoting this compact development idea love to talk about how baby boomers are becoming empty-nesters and they are all going to want to move into high density condominiums and move out of their single-family homes because their children have left home. They love to talk about how people getting out of college who don't have children yet want to live in high density and so they are claiming there is a huge demand for high density housing. If there is a high demand for high-density housing, then builders are going to meet that demand. Builders want to build what sells but the urban planners claim there is going to be huge demand and then say we need to have government restrictions to force builders to build high density, subsidize high density, and restrict the development of low density housing. There have even been discussions about how we need to start bulldozing low-density suburbs and then rebuild them into high density so that people can have the high density that they supposedly want. This is all based on a bunch of myths or fabrications.
Mosca: Where do these myths come from?
O'Toole: There is an urban planning professor from Virginia Tech who is now at the University of Utah who wrote a paper saying that there is going to be a surplus of 20 million homes in 20 years that people don't want -- he means low density homes on large lots. He says people are going to want to live in apartments and so we are going to have to bulldoze these 20 million homes. This has been repeated by Time and Atlantic Monthly and other news outlets and yet he based his analysis on a study that was done of peoples' attitudes towards housing and the authors of that study themselves have said that his numbers are entirely wrong. Their study showed that 75 to 80% of Americans aspire to live in a house with a large yard, not in an apartment, not in a condo, and not in a house on a tiny lot. If that's true, then if we start forcing the construction, forcing builders to build more high density and preventing them from building low density, we are going to get a surplus of housing that people don't want, which is high density and a shortage of housing that people do want. If you're an investor and you are investing in apartments, you better hope that your local government doesn't start subsidizing your competition, which is what happened in Portland and Seattle and other cities. If you are an investor and you are investing in single-family homes, you could see your prices rise tremendously if your local government starts restricting more single-family homes. However, your prices are also going to be more volatile. They are going to go up and they are going to go down.
Mosca: Let me play devil's advocate and ask that maybe they are promoting or proposing these types of regulations because they are worried about global warming or sustainability in some of the areas across the country right now. What do you say about that?
O'Toole: The interesting thing is that urban planners for decades have been promoting the idea that people ought to live in high density housing projects and not live in single family homes on large lots. Now that global warming is an issue, they have jumped on this issue to get government regulations to force people to live the way we want to live. They published a series of reports claiming that if we forced more people to live in high density, if we increase the percentage of people living in apartments instead of single family homes, and decrease the percentage of people living on large individual lots that that will cause people to drive less and will save energy and reduce greenhouse gas emissions. The problem is that the experts are very uncertain about whether these kinds of policies will really have an effect. Even if it is true that people will drive a little less in high densities and the numbers that they are quoting are very small, like a 5% decrease in driving if you double density, even if it is true, is it a cost effective way of reducing greenhouse gas emissions? If we improve traffic signals so that you don't have to stop for red lights as often, we can save greenhouse gas emissions at a cost of about $10 per ton of carbon dioxide emissions. The best data I've seen shows that using compact development to reduce greenhouse gas emissions, the most optimistic numbers indicate that it's going to cost $2000 per ton, which is simply not doable. If we were spending $2000 for every ton of greenhouse gas emissions trying to reduce our emissions by half we'd go broke. We have to find ways to do it that cost a lot less than $2000 a ton and I'm sure we can. Mackenzie and Company says we can cut our greenhouse gas emissions in half as long as we don't invest in anything that costs more than $50 a ton.
Mosca: You also warn in the paper that Congress is looking to incorporate greenhouse gas emission legislation recently passed in California. Is that something that is on the horizon for the rest of the country and should we be concerned with that?
O'Toole: The movement to curb greenhouse gas emissions by forcing people to live in high density has moved into high gear. Most people in Washington D.C. who are making these kinds of decisions already own their own home. Members of Congress are not living in apartments; they are living in single-family homes. They are not thinking about what this is going to do to the next generation who wants to own their own home and what is it going to do to the economy of cities. They are just thinking about how are we going to meet greenhouse gas targets. So, when somebody comes along and says here is a way to meet greenhouse gas targets, they jump on the bandwagon even though it is not cost effective and it's not certain it is going to work. California passed a law that will require cities to become even denser, which is kind of ironic because California cities are already the densest in the nation. Of course, Los Angeles is the most congested urban area in the nation. San Francisco is second. If we make these urban areas even denser, they are going to have more congestion, people are going to waste more fuel in traffic, and that's going to make more greenhouse gas emissions not less.
Mosca: It's interesting that at times people don't look at the flip side of things. It's sad to a certain extent. Reducing greenhouse gas emissions is something that we all should be doing.
O'Toole: Yes and there are a lot of things that can be done and actually save you money. For example, instead of moving into an apartment, you could better insulate your house or design your next house to rely more on solar heating rather than electric or oil or gas heating. Those types of things can greatly reduce the amount of greenhouse gas emissions generated in your day-to-day life.
Mosca: What should the Obama administration be doing on a federal level?
O'Toole: The federal government gives out huge grants to states for transportation and housing. The Department of Housing and Urban Development has had a little side shop, talking about deregulating housing to make it more affordable and nobody has paid much attention. I think this administration should pay attention because it claims to worry about low-income people and even middle income people having a hard time finding housing. If states want to continue getting our transportation and housing grants, you better deregulate your housing so we don't have more bubbles. Instead, unfortunately, the administration is doing exactly the opposite. The Secretary of Transportation and the Secretary of Housing and Urban Development have signed an agreement in which they will force all 400 major metropolitan areas in the country to write plans that will cause more housing bubbles in the future, more compact development plans and more urban growth boundaries and more urban areas so that the next housing bubble will effect the entire United States and not just some of the states. That to me is a recipe for disaster and yet that is exactly what the Obama administration is doing.
Mosca: Is there something more to it than that?
O'Toole: PJ O'Rourke says that Democrats believe government works and the Republicans believe it doesn't work and they get elected and prove it. When he says that Democrats believe that government works, what he really means is that Democrats believe that governments can plan for us instead of letting us plan for ourselves. The Secretary of Transportation and the Secretary of Housing and Urban Development have decided that they know how we should live, they know how we should get around, and we should live in higher density housing, we should get around more on mass transit and so they are going to try and force all major urban areas to reshape themselves for the lifestyles that they think we should live rather than the lifestyles that we want to live or we do live.
Mosca: Is there anything that the listeners, as individuals, can do to help prevent another crisis like the one that we just went through?
O'Toole: These decisions ultimately are being made by metropolitan planners, or by what is known as metropolitan planning organizations. Most people pay attention to their state elected officials, their Governor and their Secretary of State. They pay attention to their federal officials and maybe they pay attention to their city governments but most people pay very little attention to these metropolitan governments. It is kind of a new, hidden level of government. I think people need to pay more attention to what metropolitan governments are doing. They need to educate themselves. They can download my paper from Cato.org/policyanalysis. It is the paper on how urban planners caused the housing bubble. Then make sure that the people who are running the metropolitan governments in their areas have the paper and know what they are going to be doing if they pass these kinds of rules.
Mosca: What is your golden nugget for today?
O'Toole: Urban planners caused the housing bubble by creating restrictions on housing in major urban areas in states, particularly California and Florida and I think we need to be wary of anything that urban planners tell us. Urban planners tell us that they can do the restrictions without increasing housing prices and yet really their goal is to increase housing prices and land prices to force people to live in smaller lots and more people to live in multifamily housing. They are being disingenuous when they say they are not going to increase housing prices. We need to really dismantle the whole idea that urban planners can run our cities and put more citizens, more politicians in charge rather than the urban planners. Politicians should not be listening to the urban planner. Instead of that, we need to think more about letting the market work, letting the market provide housing, letting the market provide transportation rather than letting central planners decide what kind of housing we are going to get to live in, what kind of transportation we are going to get to travel around on.