New Urban Development: Looking Back to See Forward

6. The Turn against Expansion and Growth

A New Spirit Constrains Development The “Indians” who threw tea into Boston Harbor touched off a revolution that gave birth to the United States of America. They were protesting against a government that restricted the supply of a common consumer item—tea. What followed from that protest was a revolution. The government of the new country that emerged from the revolution instituted a bias against interfering in trade and commerce. Its founders erected a fence—of law and habits of thought— between the government and the marketplaces where private parties allocated resources, including land. The government looked over that fence to regulate taxes, provide public services, and be available as a third party to arbitrate private sector disputes. However, the public services that the government was to provide were strictly limited to those necessary positive externalities like roads and defense that are difficult for the private sector to produce or that tend to be natural monopolies that will not be produced or, if produced, will be priced unfairly. A bridge over a river is an example of such a natural monopoly. The owner of a single, heavily trafficked bridge over a river is in a position to maximize revenues by charging a toll that will exclude many from being able to use the bridge and will earn the owner a return well above the rate of return needed to attract capital to the bridge-building venture. If the bridge is owned by the public, a much lower toll can be charged, equal to the marginal costs of operating the bridge and paying off the costs of building it. At least theoretically, this means that after the costs of building the bridge are recovered, an even lower toll could be charged by the public entity. If this does not happen, it is usually because the public decides to keep the bridge toll above operating costs to raise money for some other public purpose. 123 6 The Turn against Expansion and Growth The bias against the government stepping over that fence was maintained for almost two hundred years and extended to decisions about the use of land. Throughout those two centuries, land accounted for a small proportion of the total costs associated with creating new housing. As recently as 1964, when I came to California, land typically accounted for between 15 and 20 percent of the total price of single-family “tract” homes. This was the same range I was accustomed to seeing in southern Ohio’s new suburban developments. By 2005, when my company was implementing the development of single-family homes at eight to the acre and townhomes at more than fourteen to the acre, the cost of land in northern California accounted for about 43 percent of the price buyers paid for new homes. In the midst of the 2008–2009 housing depression, entitled land—that is, the land that public agencies would allow to be used for housing development—in northern California constitutes about 25 percent of the price builders think they are going to obtain for the single-family tract homes they plan to build. During the roughly two hundred years when builders and developers decided how many houses they would build on the land they would buy, individual homeowners had little influence over how the land in their regions or even neighborhoods would be used. Today, individual homeowners still do not directly tell builders and developers how much and what, if anything, to build. But that is exactly the power homeowners have as voters who elect the lawmakers and executives who, by controlling the uses of the land, do decide how much housing can be built. Those who were not already homeowners were worse off when local governments started to step over the fence and effectively took over the decisions previously made by developers and builders operating in response to their perception of the signals shown by local housing markets. By consistently allowing less land to be built on for housing than the number of lots that builders and developers would have built on in the absence of regulatory barriers, officials acting on behalf of public agencies and local governments effectively allocated the amount of land used for residential construction. As most existing homeowners saw it, the shifting of control over how much and which land could be developed for housing benefited them by providing them with a feeling of control and creating the shortage that pushed up the value of...