Property Rights Foundation of America®

from PRFA's Twelfth Annual National Conference on Private Property Rights
October 18, 2008

Free Market Solutions to Urban Problems

Randal O'Toole, Bandon, Oregon
Director, American Dream Coalition of the Cato Institute;
Senior Fellow, Cato Institute; Senior Economist, Thoreau Institute

I want to talk to you about social engineering, because that's really what we're talking about. I'm going to start by telling you a story of my hometown, Portland, Oregon. Portland is a city on the Willamette River, sometimes it's known as "Moscow on the Willamette." I loved it growing up there but hate it now. I almost never go back. I would never go back if I didn't still have family there.

In 1979 they drew an "urban growth boundary" around the city. They said, "If you live outside the boundary" — and in fact 98 percent of Oregon is outside of an urban growth boundary, 98 percent has been zoned rural — "you cannot build a house on your own land unless you own eighty acres of land, you actually farm it and if you actually earn $80,000 a year farming your land." And they said, "We need to do that to make sure that doctors and lawyers don't become hobby farmers. Who knows, maybe engineers and 'Joe the Plumber' are getting involved and becoming hobby farmers and we can't have that." So they passed this stringent rule, and then they said, "Inside the urban growth boundary we are going to 'densify,' we're going to pick select neighborhoods, all these blocks of land, and select corridors and zone them for higher densities." So if you live in one of these neighborhoods, if your house burns down you're not allowed to rebuild it, you're required to build apartments instead.

Now you think that may be a little bit intrusive on property rights? Well, we live in Oregon, we don't need no stinkin' property rights. This is a book called The Land We Share; it's been promoted by the American Planning Association. This book says that private property is an institution that changes over time. So it may be that today you can build a house on your land, but tomorrow your community has decided that your land is more valuable as open space — to "them." And so you don't get to build a house on it anymore. It may be that today you get to farm your land, and tomorrow they've decided to turn your land into a wetland and so you don't get to farm it anymore. They may decide things like that, and that's just an appropriate thing.

In Oregon it's understood that nobody can do anything with their land without permission from everybody else in the state. Anybody in the state has the right to object to what anybody else does about his private land. This is also true in California and several other states. Now, this is all related to transportation, because planners believe that there's a land use-transportation connection. And if they can influence land use, they can make you stop driving. And everybody knows that driving is evil, it pollutes, it generates greenhouse gases, it uses oil. So we need to get people to stop driving, and so we need to build light rail lines. Whenever I see a picture of a light rail vehicle in front of an ugly Stalinesque apartment building, I think of it as being in Portland. But you can actually tell the difference between Moscow and Portland because in Moscow it's sunny, and in Portland it's rainy.

Now, I don't want to say that nobody rides the light rail in Portland. They have a train to the airport and one time the train left the airport with only one passenger on board, a coyote. Coyotes like to go where they can find solitude from people. They zoned the route on the way to the airport for high density, multiple purpose, mixed use developments, and ten years later not a single thing was put there. In fact, this has happened throughout the Portland area. They say, "We build light rail to encourage our communities to develop at higher densities."

But they get no economic development after they build light rail until they start to subsidize it. So then they started giving ten-year property tax breaks, waivers of property taxes, to anybody building high density stuff on the light rail line. They buy land and they give it away to developers for free or below market prices. They use tax increment financing. So far they've got $1.8 billion of tax increment financing, which, as you know, takes money away from schools and fire and police in order to subsidize real estate developers so they can have developments that are very much like those in East Germany. The difference between the Portland development and the similar development in East Germany is that as soon as people in East Germany got their freedom, they all moved out. They all moved into single-family homes. Communist-era apartments I photographed are vacant or they're blowing them up next week. In Portland, now, we've lost our freedom, forcing more and more people to live in this kind of housing whether they like it or not.

At apartments in Portland right next to a light rail station, where supposedly people aren't going to drive as much, cars are parked right in front of a little red sign that says, "This is a Fire Zone," and you're not allowed to park there. People parked there, they are parked on the sidewalk because the city only provided two-thirds of a parking place per housing unit, and people just make up their own parking as they go along, and the managers know if they enforce the rules that people would move out, so they don't enforce them. The actual numbers show that people who live in these developments drive just as much as everybody else. At another light rail station is a mixed use development; the top three floors are apartments, the bottom floor is shops. Well, it's supposed to be shops, but every single one of them is vacant because there's no parking for the shops. So with no parking (parking drives retail), it's not enough to have light rail passengers walking by your shop. You have to have people drive in and out, and if you don't, then your shop is worthless.

This doesn't mean light rail is always bad for business. There are some businesses that light rail is very good for. However, they aren't necessarily businesses that you want to have in your neighborhood. "Max" is the name of Portland's light rail line. And Portland's light rail has become famous as the center of the drug traffic and gangland activity. We have an Asian gang and a Hispanic gang, and they're always fighting over who gets to control the drug traffic on the light rail. We have drive-by shootings on the light rail all the time. We have policemen in Portland who say that they refuse to ride the light rail even though they're always armed because it's simply too dangerous.

If that's not enough for you, here's another thing that's going on, thanks to tax subsidies and rezoning. They're taking single family homes. Now "smart growth" advocates say, "We're not against single-family homes, we just want to give people a choice." So they're taking single-family homes on quarter-acre lots, and they're subsidizing the developers to tear down the home and subdivide the lot into four 25-ft. wide, 100-ft. long lots, and build what they call "skinny houses." These houses are 15 ft. wide. So essentially they're about the size of a mobile home, only instead of a double-wide mobile home, it's a double-high mobile home. For example, at a place where people had built their houses a long way apart from one another, they say, what a waste of land! Let's just chop down those trees and put up a skinny house. And that way we'll get more density in there. There's only room for one car in the garage, so people are going to have to have fewer cars, right?

Right. This is what planners project is going to be the effect of their plans on the Portland area. In 1990, 92 percent of all travel in the Portland area was by car, about 2-1/2 percent was by transit, and about 5 percent was by walking and bicycling. OK, so we're going to build 100 miles of light rail lines in Portland, we're going to put up all kinds of Soviet-style developments. This is what the planners project is going to happen: transit is gonna double from 2-1/2 to 5 percent, walking and bicycling will go from 5 to 6 percent, and driving will decline all the way from 92 to 88 percent of travel. But of course they're expecting 80 percent more people, so that really translates to about 70 percent more automobile driving every day. They're not going to build any more highways. So they're going to get a lot more congestion.

The truth is, "smart growth" does not influence travel habits all that significantly. We can see that from my analysis of 400 American urban areas in the 2000 census. The population densities range from about 1,000 to about 7,000 people per square mile. And at the highest densities, there is only about 8 percent less driving than in the lowest densities. So you can hextuple your densities, septuple your densities, and reduce driving by 8 percent. In other words, you have to go to Manhattan-style densities to really have a significant impact on driving, and people just don't want to live that way anymore, very few Americans want to live that way. But that really doesn't matter, as The Onion pointed out in a recent issue, 98 percent of commuters want other people to ride transit.

Smart growth advocates all live in their single-family homes and they want other people to live in the high-density housing. If you're already comfortably living in a house that you own or you're buying from a bank, and you're driving around in an SUV, it's real easy to say, "Everybody new who moves into this community should have to live in high density housing." The new mayor-elect of Portland has announced that his policy is going to be that no more single-family homes will ever be built in Portland, no more housing will be built in Portland at all, except for high-density housing along the light rail lines.

The smart growth does not have much of an effect on transportation; it doesn't have an effect on driving. But it does have a big effect on housing prices. We all know, we've gone through this big financial meltdown, basically urban planners caused the meltdown. Urban planners caused the housing bubble that led to the meltdown.

Los Angeles and Merced, California, and Fort Lauderdale, Florida, experienced the classic bubble. Prices just shot up after 2000 and now they're crashing downwards. That's because California and Florida both have urban growth boundaries, just like Oregon's and Portland's, that created an artificial shortage of housing. And you had the housing bubble. Whereas, in Atlanta, Houston and Dallas, where they don't have artificial shortages, they don't have urban growth boundaries, they didn't have a housing bubble. Housing prices are not declining, they didn't shoot up and they're not going down. And that's because people can build where they want, people can live where they want.

We can look at it another way. Back in 1969, housing prices were about the same everywhere in the country. As a multiple of median family incomes, median housing prices were about two times median family incomes anywhere. You could afford to buy a house in San Francisco. You could afford to buy a house anywhere. The only exception was Hawaii, which had passed the nation's first smart growth law in 1961. So housing was affordable everywhere, and today it's still very affordable in places like Atlanta and Houston, but in cities that have got urban growth boundaries and other growth management planning or smart growth, you're finding housing prices are very, very expensive. They're four, six, eight, ten times median family incomes. When housing prices are ten times your income, that means you can't afford it. Even if you borrow a fifty-year loan and get the lowest possible interest rate, you're never going to be able to pay that back, and so you just can't afford it. So this is all a result of what's technically called "growth management planning." Smart growth is one kind of growth management planning, but it's the most common kind today.

Growth management planning was invented in the year 1600, I believe, by Queen Elizabeth, who dictated that there would be an urban growth boundary around London, and you weren't allowed to build outside that boundary. In 1947 a new boundary was drawn in England by the Town and Country Planning Act. England now has the least affordable housing in the world. They had housing bubbles just like ours, because they have growth management planning. In the United States, about a dozen states now have passed growth management laws, requiring all the cities in the state to have urban growth boundaries, or some similar kind of growth management planning. If we look at where the housing bubbles are, you can see pretty much the housing bubbles are in the same states that have growth management planning.

The main exceptions are in Nevada, where you have a big housing bubble but you didn't have a state growth management planning law. That's because 90 percent of Nevada is federal and the growth of Reno and Las Vegas have been fed by sales of federal land to developers, and those sales slowed way down after 2001 because, I guess,…Al Gore got elected president and he wanted smart growth…I don't know why sales slowed way down, but they did and so housing prices shot up. So we have growth management planning in Nevada at the federal level.

The other exception is Tennessee, which has a growth management law, but their prices didn't bubble. That's because their law was passed in 1998, they've only recently drawn the urban growth boundaries, and the boundaries are big enough that they didn't cause a bubble in this housing boom. But in the next one they will, so they'll join the next bubble and make the next bubble even worse than this one is.

What happens when you make housing really, really expensive is you create, as one economist said of San Francisco Bay area, a Disneyland for yuppies. The average income of San Francisco is a lot higher than the rest of the country. It's not because people are so much more productive in San Francisco. It's because the poor and the middle class people are moving out, the numbers of poor and middle class is declining, the number of blacks are declining, the number of Hispanics are declining. It's essentially becoming a white, upper middle class enclave, not just the City of San Francisco but the entire San Francisco Bay area. And you can track the numbers by income of city after city in the country, and the cities that have passed these rules are losing low income people. The cities that haven't passed these rules are not.

The real danger in the next twelve months, is that James Oberstar of Minnesota, the chair of the House Transportation Committee, wants these rules to be imposed by every metropolitan area. He wants to pass a federal law requiring it. This is how it's going to work. Right now, when you pay gas taxes, 20 percent of your gas taxes are siphoned away from highways and into transit, rail transit mostly. Another 20 percent goes to "other," which is all kinds of ridiculous things-museums, restoring old train stations, all kinds of stuff. Only 60 percent goes into highways; that's why we have problems with highways. We have problems with congestion because 40 percent of your money is being siphoned off into other stuff. Every six years Congress reauthorizes the gas tax and plans what they're going to do with the money for the next six years The last highway bill spent about $280 billion over a six-year period. And Oberstar wants to increase it to $450 billion in the next six years. It's up for reauthorization in 2009. Now to do that he's going to have to significantly increase the gas tax, and I think his goal is a 40 cent increase in the gas tax, to be phased in over about twelve years. So maybe do it two or three cents a year for twelve years, get it up to about 36 or 40 cents total.

Another thing we're seeing is a lot more earmarks. In 1982 there were ten earmarks in the transportation bill. In 1988 there were 100, and it was vetoed by Ronald Reagan because of the rampant pork barrel. In the last bill there were 7,000 earmarks. They've been growing exponentially. You can anticipate maybe 30,000 in the next transportation bill. But this isn't really what Oberstar has in mind. Instead what he wants to do is fight global warming. Now, I'm not an expert on climate, and I'm not going to argue about whether global warming is happening or not, whether humans are causing it, or whether we can or should do anything about it. But, I can tell you right now, automobiles are getting more and more energy-efficient each year, and the amount of greenhouse gases is almost exactly proportional to the amount of fuel they use. So as they get more energy-efficient, they're emitting less greenhouse gases.

Transit, especially bus transit, but also rail transit, is getting less and less energy efficient. That is because we insist on building these rail lines to places that nobody wants to go to, so the trains are running around empty all the time. And so the more rail lines we build, the more greenhouse gases we're going to emit. It's not going to reduce greenhouse gases, it's going to increase them.

SUV's use a lot of fuel and they emit a lot of greenhouse gases. Buses are almost in the same category as SUV's. But light rail is next. If light rail is powered by electricity that is generated from non-fossil fuel sources, then light rail does pretty well, and so you see the amount of greenhouse gases is kind of low for light rail. But that's an average. The light rail lines in Denver and Minneapolis and other cities where it's powered by fossil fuels have very high levels of carbon dioxide outputs, in fact higher than the average SUV. It's only because of the light rail in Portland and Sacramento, San Diego, and San Jose, where the energy comes from hydroelectric dams, that you don't get a lot of carbon dioxide. The average looks low, but you have to look and see what your source of energy is.

If you want to reduce carbon dioxide outputs, and you get your electricity from non-fossil fuels, the best thing to do is put in trolley buses, rubber-tired buses with trolley wires overhead that are powered by electricity. That costs a lot less than light rail and it generates a lot less carbon dioxide.

Cars are about the same as light rail today, but by 2030 cars are supposed to be a lot more efficient, and in fact there's almost no rail system in the country that produces as little carbon dioxide and uses as little energy as a Prius. And within thirty years both cars and SUV's are going to be under the same standards in the future. Within thirty years cars are going to be under 2500 BTUs per passenger mile. There are very few rail lines outside of New York City that do better than that.

What Oberstar is going to propose to do, and what we're going to see a big push for, is a requirement that every urban area increase its density in order to reduce greenhouse gas emissions. The State of California has already passed a law requiring every urban area in California to increase its density to reduce greenhouse gas emissions. But this kind of prescription is a very bad idea because, first of all, increasing density doesn't reduce greenhouse gas emissions.

The Australian Conservation Association found that high rises produce the most carbon dioxide per capita, and townhouses do the least. But single family homes are not far behind townhouses. High rise, mid rise and low rise housing are far less greenhouse-friendly than single family homes. And this is only the operational cost. When you count the construction cost, it turns out that concrete and steel in high rises emit huge amounts of carbon dioxide, whereas single family homes are mainly of wood, use very little steel and not much concrete, emit very little carbon dioxide during the construction process.

The consulting firm McKinsey & Co. was hired by the Natural Resources Defense Council to figure out a strategy for lowering American's carbon dioxide greenhouse gases by 30 percent between now and 2030. And what they found was that there's a whole lot of things you can do that cost less than $50 per ton of carbon dioxide reduced, that if we did all those things it would reduce our total carbon dioxide output by 30 percent between now and 2030. But that means you shouldn't do anything that costs more than $50 a ton, because that takes money away from the things that cost less than $50 a ton.

So here are some things that you can do. You can coordinate traffic signals. According to the Federal Highway Administration, at least a third of all the traffic signals in this country are poorly coordinated with other signals. If you coordinate traffic signals, you can reduce delays. By coordinating signals, you can reduce people sitting in their vehicles at red lights, which wastes fuel and emits all kinds of pollution.

It will pay for itself because the amount of money people save on gas pays for the cost of traffic signal coordination. So that's a freebie essentially. More fuel-efficient cars pay for themselves. It turns out hybrid electric cars don't; they're a little bit more than the savings you get because of the energy cost of making the batteries is so great. So McKinsey recommends just making cars lighter weight, using more aluminum and things like that, instead of steel. Bio-diesel does sort of OK, but not very well.

Hybrid buses are really not very good, over $1,000 a ton. Remember, our threshold is $50 a ton. Light rail? Many light rail lines produce more carbon dioxide than cars, but the few that do save money, that save carbon dioxide outputs, do so at a cost of around $5,000 to $10,000 per ton of carbon dioxide.

And, if you do save carbon dioxide, if you do save greenhouse gases, by putting people in a higher density, the cost is around $60,000 per ton of carbon dioxide saved. So, California has passed this law requiring every city to densify, to reduce carbon dioxide. Other states are looking to pass the same law, it's considered a model for the nation. Oberstar wants to build that into the next transportation bill. And yet, those things, if they work at all, they are extremely costly.

Well, what should we do instead? I think the model for the nation, and a lot of these things is a city that we just talked about. Houston, Texas. Houston has no zoning. People say, "Oh, zoning! You have to have zoning, otherwise you're going to end up living next to a gravel pit, your neighbor is going to put in a factory or a gravel pit or something like that. And so you want to have zoning." This is the emphasis behind the whole Euclid thing that Dr. Inniss was just talking about. Dr. Inniss and I were fortunate enough to take a tour of Houston last June. Here are some of the things that people have to live with if you live in one of the developments that we saw. First of all, it's got this big pond. There's a fountain in the middle of the pond. And, of course, because it's hot and humid in Houston, they had to build a giant water park; it's the second largest water park west of the Mississippi. And they've got ball fields: baseball, softball, soccer ball, every kind of ball you can imagine. And that would be kind of noisy; it would be kind of annoying to have all these ball fields in your development. And there is a horse-riding stable, and just think how smelly it would be to have horse-riding stables in your neighborhood. People have to put up with these things in Houston. I feel sorry for the people living there because they have to put up with all these nuisances, these ball fields, these parks, and so on and so forth. In the development we visited, one house cost about $170,000, another house is a little more expensive, it's about $250,000. You can buy a million-dollar house there, but prices in this development start in the $160,000's. In one county in the ten-county Houston area alone, in one county alone, there are 24 active developments that you can buy into. Prices start in the $110,000's for a 1500 sq.ft. house. So, you know, it would be terrible to have to live with all of these things in your neighborhood, ballfields, water parks, horse stables and so on, but for that price I'd be willing to put up with it.

Now Joel Kotkin is an urbanologist from Los Angeles, He's been writing about cities for a long time, and he took a look at Houston. He said Houston is what he calls "opportunity urbanism." Houston doesn't attract rich people. San Francisco is trying to get rich people to move there and push the poor people out. Houston doesn't attract rich people, it makes rich people. It attracts poor people and then helps them achieve the American dream. So he considers Houston to be the model for the nation, just like I do.

Houston isn't perfect. Unfortunately they've got a light rail line. But they also have toll roads. Toll roads all over the place. I really think the solution to our transportation problems has to be user fee-driven. If people aren't going to pay for transportation facilities with user fees, then we shouldn't be investing in those facilities. We're spending tens of billions of dollars a year like we are now on rail transit when people are not willing to pay to even operate the rail transit, much less pay the capital costs. The 6.2-mile four-lane freeway that went from the development I just discussed to the edge of Houston, where it met another highway, was built for $60 million. That's the cost of one mile of light rail line. Each lane mile on this highway carries five times as many people a day as one mile of light rail line. So do the math. This is costing 1/50 per passenger-mile of what a light rail line costs. It's paid for entirely out of tolls. No taxes at all went to this highway, whereas light rail lines are paid for entirely out of your taxes.

Now what should we do about transportation in addition to tolls? Well, I mentioned traffic signal synchronization; that makes a lot of sense. The average city can synchronize all its traffic signals for about $10 million to $100 million, depending on how big the city is. In other words, for about the cost of one mile of light rail line. And the benefits you get in terms of energy saving, in terms of saving people time, reducing congestion, reducing greenhouse gases, are greater than what you'd get for building 100 miles of light rail. Tolls are a good idea. On the East Coast, you've got what are called "EZ Passes," but I think you can use them to drive all the way from Maine to North Carolina now with just one transponder. But the neat thing is that you can charge a higher toll during congested periods and other periods.

Another approach I've seen is a toll road where there are toll lanes next to free lanes and you can decide, "Do I want to take the toll lane?" Toll lanes are telling you what the price is if you get on it right now. And you can decide, do you want to take the toll lane or do you want to sit in traffic, maybe, on the freeway? I have a video showing toll lanes, where you can see that there are a lot of cars on those free lanes and they're not moving. The toll lanes are moving very fast. And it's very safe, because those lanes are designed to have less traffic and so you don't have as many accidents.

I recommend that states adopt regional tollway authorities. In Texas, each county is allowed to have its own tollway authority. Florida has regional tollway authorities. Regional tollway authorities that are funded exclusively out of user fees will become independent, they won't be reliant on political whims of smart growth planners or anything like that. For example, in Tampa, they wanted to build a light rail line that would have cost half a billion dollars, all of it subsidized. It would have done nothing about congestion, but a local toll road authority built a freeway that's elevated above an existing tollway. And the new toll highway is three lanes, it's built on 6 ft. piers, so the three lanes go inbound in the morning and outbound in the afternoon. So it's really three lanes in both directions. They like to say they got six lanes and six feet of right-of-way. It totally relieves congestion on that toll road. The road before was a toll road but they didn't use congestion pricing, and it was totally jammed up in the mornings going in, totally jammed up in the afternoons going out. Now it's what they call "Level of Service B," which is the second least congested road you can imagine, because people can go in in the morning on either the lower or the upper decks.

For transit, I simply think we need to privatize transit. In most cities in America, the transit is a legal monopoly. You can take a super-shuttle to the airport but you're not allowed to take the super-shuttle to anywhere else; the super-shuttle is not allowed to take you anywhere unless you're being dropped off or picked up at the airport. That's because the transit monopoly doesn't want to have competition. So we need to have a lot more kinds of transit. That'll bring the cost down. That'll provide better services to people. And if we need to help low income people, let's give them vouchers, let's subsidize the people who need the subsidies and not give a huge subsidy to the transit bureaucracies that aren't really serving transit riders.

A lot of these ideas are been discussed in some of my papers. The Cato Institute has published a lot of my papers lately. I brought a couple of them. "The Planning Tax" is about the impact of planning on housing. And "Rails Won't Save America." Now I know you're concerned about property rights, but remember, planners think there's a land use-transportation connection. So if they talk about building a light rail line in your city, you know they're going to start talking about coercive zoning as soon as that line is done. These issues are all mentioned in my book, of course, which Carol mentioned. And I also have a blog, called the "Anti-Planner." Just Google "Anti-Planner," the first thing on the list. I post to it almost every day of the week. I'll provide you with information about the latest research.

We took this tour in Houston last June as part of the American Dream Coalition's annual conference. Next annual conference is going to be in Bellevue, Washington, next April. We'll be looking at the most expensive light rail line in the universe, costing almost $200 million a mile; you could build ten miles of four-lane freeway for one mile of light rail. It's going to do nothing about congestion and they've got a measure on the ballot to build an even more expensive one, and we'll see if the Seattle voters fall for it. Here are a couple of web sites you can look at: ti.org and antiplanner, which is my blog. Also, the web site americandreamcoalition.org has a lot of my publications before I went to work for the Cato Institute. And you can e-mail me after today at rot@cato.org.

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