Welcome back to Sunday reading. To start out, here’s a fun little quiz from the Guardian: “How well do you really know your country?” It tests your knowledge about statistics from obesity rates to wealth distribution.

The most important article I read this week was Paul Krugman’s New York Times column on “inequality and the city“. Krugman pulls together his work on new economic geography with his more recent interest in inequality, and even throws in a nod to zoning policies:

…why do high-income Americans now want to live in inner cities, as opposed to in sprawling suburban estates? Here we need to pay attention to the changing lives of the affluent — in particular, their work habits.

To get a sense of how it used to be, let me quote from a classic 1955 Fortune article titled “How Top Executives Live.” According to that article, the typical executive “gets up early — about 7 a.m.. — eats a large breakfast, and rushes to his office by train or auto. It is not unusual for him, after spending from 9 a.m. until 6 p.m. in his office, to hurry home, eat dinner, and crawl into bed with a briefcase full of homework.” Well, by the standards of today’s business elite, that’s actually a very relaxed lifestyle.

And as several recent papers have argued, the modern high earner, with his or her long hours — and, more often than not, a working partner rather than a stay-at-home wife — is willing to pay a lot more than the executives of yore for a central location that cuts commuting time. Hence gentrification. And this is a process that feeds on itself: as more high earners move into urban centers, these centers begin offering amenities: — restaurants, shopping, entertainment — that make them even more attractive.

We’re not just talking about the superrich here, or even the 1 percent. At a guess, we might be talking about the top 10 percent. And for these people, it’s a happy story. But what about all the people, surely a large majority, who are being priced out of America’s urban revival? Does it have to be that way?

The answer, surely, is no, at least not to the extent we’re seeing now. Rising demand for urban living by the elite could be met largely by increasing supply. There’s still room to build, even in New York, especially upward. Yet while there is something of a building boom in the city, it’s far smaller than the soaring prices warrant, mainly because land use restrictions are in the way.

And this is part of a broader national story. As Jason Furman, the chairman of the White House Council of Economic Advisers, recently pointed out, national housing prices have risen much faster than construction costs since the 1990s, and land-use restrictions are the most likely culprit. Yes, this is an issue on which you don’t have to be a conservative to believe that we have too much regulation.

At Bloomberg View, Leonid Bershidsky fills in the narrative about the increasing attractiveness of central locations – it’s the travel time, stupid! He argues that “a leisure deficit is killing suburbia“:

Lena Edlund and Michaela Sviatchi of Columbia University and Cecilia Machado of the Getulio Vargas Foundation wondered why the relationship between housing prices and distance from the center of major U.S. cities has reversed since 1980. That year, prices were higher in the suburbs, and urban centers were going to seed. In the next 30 years, prices within three miles of the central business districts of the 27 biggest cities in the U.S. more than doubled. Within a radius of three to 10 miles, they increased by 60 percent. Further out, they only grew by 6 to 10 percent.

“The price profile flips,” the economists wrote in a recent paper. “In 1980, prices in the periphery are 50 percent higher than in the center. By 2010, prices in the center are 40 percent higher than in the periphery.”

homeprices
Edlund, Machado, Sviatchi, 2015

Edlund, Sviatchi and Machado hypothesized that this was because high-income households have faced a shortage of leisure. “This time scarcity,” they wrote, “has propelled centrality to the top of the local amenities list.”

Indeed, since 1990, the number of skilled people working long hours — 50 a week or more — has been growing. There are often two such people to a relatively affluent household, and they know a long commute is not an option: It doesn’t just leave little time for fun and family life, it’s downright bad for one’s health.

Bershidsky focuses on how technology – self-driving cars or telecommuting – could narrow the leisure deficit. But there’s a more obvious solution at hand: let people build more housing in accessible, attractive areas.

Don’t believe that’s possible? Look at European cities. Chris Loader from Charting Transport has just put together a comparable measure of population-weighted density for Australian and European cities, based on new 1-km grid population data. Conclusion: Australian cities have a lot of room to grow up:

Comparing population-weighted density of Australian and European cities

AU EU Population Weighted Density

You can see the five Australian cities are all at the bottom, most UK cities are in the bottom third, and the four large Spanish cities are within the top seven.

Sydney is not far below Glasgow and Helsinki. Adelaide, Perth and Brisbane are nothing like the European cities when it comes to (average) population-weighted density.

Do many people in European cities live at typical Australian suburban densities?

Do many Europeans living in cities live in detached dwellings with backyards, as is so common in Australian cities?

To try to answer this question, I’ve calculated the percentage of the population of each city that lives at between 10 and 30 people per hectare, which is a generous interpretation of typical Australian “suburbia”.

AU EU cities percent at 10 to 30 per hectare

It’s a minority of the population in all European cities (and even for Sydney). But it does exist. Here are examples of Australian-style suburbia in outer Hamburg, Berlin, LondonMilan, and even Barcelona (though I hate to think what some of the property prices might be!)

Somebody’s already put together a similar 1-km grid for New Zealand, so I’m sure we’ll see how NZ cities stack up fairly soon.

https://twitter.com/SirWB/status/672564691978182656

Speaking of comparisons between countries, Bernard Hickey makes a provocative suggestion – New Zealand, not Australia, is becoming the ‘lucky country’:

Young and fast-growing economies need steel and concrete for their infrastructure and factories, which can only be made with iron ore and coal. More mature economies need pizzas, espresso coffee and services such as health and education.

New Zealand produces protein and views, while Australia produces iron ore and coal. One caters to older, slowing growing economies. The other has ridden the wave of emerging Asia’s stunning investment growth.

Former NZ Finance Minister Michael Cullen captured that hard luck story best in 2009 when he said of Australia’s faster growth: “It’s nothing to do with their intrinsic superiority or less regulation or whatever, it’s because they’ve got this vast mineral wealth.”

“We only succeed on the basis of what we’re intelligent enough to create, not like the Australians digging up their country because the world wants what they’ve got buried beneath it,” Dr Cullen said.

Hickey argues – reasonably persuasively in my view – that China’s demands are shifting from hard commodities to consumer goods. In that context, New Zealand could have better luck than Australia for a change.

Of course, we can’t count on good luck – we’ve got to be smart and efficient. We’re possibly a bit ahead of Australia on that front, as this article on Sydney’s A$17 billion Westconnect motorway project by University of Sydney transport analyst Chris Standen shows:

The Baird government has published an updated business case for its controversial WestConnex tollway scheme, which it plans to build through inner Sydney. The claimed benefit-cost ratio has declined from 2.55 to 1.71, due to a $6 billion cost blowout taking the total cost to $17 billion.

But the economy will still benefit by $1.71 for every dollar spent, right? Well, that is what the Turnbull and Baird governments would have us believe, with federal Minister for Cities Jamie Briggs boasting the scheme will “inject $20 billion worth of benefits into the national economy”.

This is stretching the truth. When economists talk about economic benefits, they don’t just mean benefits to the national economy, but also social or environmental benefits for which they can estimate a dollar value…

The main failure of this approach is that it places significant value on hypothetical travel time savings. In NSW, it is normally assumed travellers would value saving one hour of travel time at $15 to $48. For WestConnex, the estimate has been inflated to $21 to $70. This results in a total travel time saving benefit valued at $13 billion, allowing the government to claim a positive benefit-cost ratio. However, in the case of personal travel, this is purely a social benefit that will not help the national economy. Rather, economists argue it will increase gross national happiness by giving some of us more leisure time.

Or will it? The average daily travel time in Sydney has been stable at about 80 minutes a person for decades, while the average trip distance has increased substantially. In this time, billions have been spent on tollways. We’re spending more than ever on tolls, yet have not gained one minute of leisure time.

A $6 billion cost blowout, and obviously doctored figures on travel time savings. Not a good look. Some Australian research suggests that New Zealand is better at managing cost blowouts on tunnelling projects than Australia (and just about everywhere else). That bodes well for CRL, although I wonder if it’s partly due to the small number of tunnelling projects completed here:

WPI Regional comparison of tunnelling costs

However, New Zealand’s not immune to screwups. A new Treasury report suggests that several of the Christchurch city centre anchor projects are going wrong. Bob Dey’s got the details on the report, but I preferred Andrew Gunn’s satirical take on the issue in The Press:

SATIRE: Legendary bluesman Gerry “Big Cracks” Brownlee has vowed to save the yet-to-be-built Christchurch Convention Centre, even if he has to bring the band back together to do it.

Fans of the much-loved and storied future venue were dealt a cruel blow this week when Treasury officials, described by Brownlee as “blinkered bean-counting wage slaves to the System”, revealed in a report that the economic case for the convention centre and other anchor projects did not stack up.

But Brownlee, known for his strident trumpeting, has refused to take the report lying down, arguing that the convention centre would be part of the rebuilt city’s vibrant heart and “about much more than just the money”.

“Everyone in Christchurch has a favourite memory about the new convention centre. Who can forget where they were when it was announced that the Asia-Oceania Conference of Physical and Rehabilitation Medicine would be held here in 2018?

Lastly, as climate talks are currently happening in Paris, a mock weather report for 2050 provides a vivid illustration of why it’s imperative to act on climate change:

I’m planning on being alive in 2050. I would like this not to happen. Fortunately, as the Scientific American reminds us, “a tax on carbon pollution can benefit businesses“:

In British Columbia, air pollution dwindles while the economy grows. The Canadian province began to tax fossil-fuel users, ranging from utility companies to car drivers, in 2008. Since then, the economy has grown by an average of nearly 2 percent a year, despite a big national recession through 2009, outpacing the rest of Canada. The use of gasoline, coal and other carbon-based fuels has dropped 16 percent during the same period, reducing greenhouse gas pollution. Today the carbon levy is $30 (Canadian) per metric ton; in exchange, both companies and individuals get income tax cuts and other savings.

Have a good Sunday!

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11 comments

  1. Bloomberg have a good article on “Your Landlord is a drag on Growth”. http://www.bloombergview.com/articles/2015-12-04/your-landlord-hurts-growth-and-aggravates-inequality

    That speculates a coalition from the left and right or in US terms Liberals and Conservatives can combat the vested interests of local landlords etc who are gaming local politics for their personal gain but for the cities and eventually the countries loss. It is a good read and food for thought.

    In NZ case. I think Peter makes a good case with today’s Sunday reading articles that we need to free up restrictions for going up not just going out.

    1. Yep, I’ve noticed that the issue’s getting quite a bit of attention in the US econoblogosphere these days. I’ve got a post this week talking about the prospects for reforming planning regulations that I think you’ll find quite interesting.

      Incidentally, New York’s a good example of why restrictions on going up are economically deleterious. The metropolitan area doesn’t have an urban growth boundary but because it’s made it increasingly difficult to construct tall buildings, it’s still got excessively high prices.

        1. Yeah, overshadowing is definitely a thing. I’m just not sure how bad it actually is. There is an almost total lack of empirical evidence linking the presence of tall buildings to lower property values or other quantifiable measures of wellbeing. It’s possible that shading is like congestion or priced parking – everyone complains bitterly about it, but in practice they don’t seem to mind it so much.

          1. Yes shadow can be a bit unpleasant, but that shadow doesn’t stay in the same place all day.

            All those newspapers over here were talking about 3-storey limits. The WTC was a bit higher than 3 storeys.

            And those affected suburbs are called ‘leafy’ after all the trees over there, which are probably also more than 3 storeys high. In my experience, a few big trees will cast way more shadow in your garden than a 3-storey house.

          2. Sure. But that wasn’t the point I was trying to make.

            You don’t always need empirical evidence to know something. Sometimes you just know.

          3. If you’re making public policy, you need the empirical evidence. There is a wealth of evidence on the cost of building height limits – start here, perhaps – and I don’t think it makes sense to discard that evidence simply because some people “just know” something. A more appropriate response would be to go and measure the ill effects of overshadowing, and see if they are large enough to justify regulation.

            Furthermore, I think Roeland’s point about street trees is highly relevant. There are quite a few papers showing that street trees raise surrounding property values – an effect that some authors attribute to the benefits of shading. This suggests that the relationship between shading and amenity is considerably more complex than people commonly assume.

            In summary, if it’s important, you should be able to measure it.

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