Bacon's Rebellion

Democracy Thrives in Sunlight

FANNIE AND FREDDIE

—

by

James A. Bacon
in ,

The front page of today’s WaPo Business section has a nice clear diagram on how the Fannie and Freddie balloon is deflating – by reversing the process that created the bubble in the first place.

On the same page Columnist Steven Pearlstein, who recently did a fine job of nailing Sir Alan (Greenspan) to the wall for his role in the current unpleasantness, has some sound advice for Treasury Secretary Hank Paulson on Fannie and Freddie as well – get out the bazooka.

Strange as it may seem there is STILL no mention in WaPo coverage of the REAL problem with Fannie and Freddie – financing dysfunctional settlement patterns by failing to create any guidelines on the LOCATION of the dwellings covered by the mortgages they bought and packaged.

Perhaps the editors should reread the story by Juliet Eilperin datelined Seattle from 4 May 2008 in, of all places WaPo. The May story has a climate change focus but she presents a nice simple explanation of why LOCATION, PATTERN AND DENSITY – in a phrase ‘human settlement patterns’ are so important. Eiplerin underestimates the level of impact settlement patterns by a factor of 5 (the is 500%) but it is a start and should be enough to make clear what the REAL problem is with Fannie and Freddie.

The Eilperin story also reinforces the point Jim Bacon makes in Peter G’s post on Obama / Virginia: “When are we going to start making transport investments based on supporting functional and sustainable human settlement patterns?” More in Monday’s column.

EMR

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65 responses to “FANNIE AND FREDDIE”

  1. dkuehn Avatar
    dkuehn

    Can you suggest a good book on human settlement patterns? I’ve lived in northern virginia all my life, so I’m familiar with “smart growth” concerns – but I have a feeling you have something very specific in mind when you talk about this. I’m a labor policy analyst so I have a tangential interest in this sort of stuff without any specific training in it or understanding of it.

  2. Anonymous Avatar
    Anonymous

    From “Tysons Land Use Task Force
    Overview of Final Recommendations,
    Third Review Draft, August 17, 2008″

    “1. Create A People-Focused Urban Setting

    Policy Changes Required
    • Allow significantly higher densities in TOD areas.
    • Create urban standards to guide all aspects of Tysons Corner development and implementation.
    • Strengthen targets for affordable housing.

    Specific Recommendations

    1b. Create a balance between jobs and residents. Jobs could increase from 110,000 today to as many as 200,000 at the end of the planning horizon. This needs to be balanced by building housing for up to 100,000 residents compared to 17,000 today. This will dramatically improve the ratio of jobs to residents and keep more people living where they work.”

    This sounds fine. But, of course, how to get there from here is not explained. Where has this been done successfully before? What are the demographics for today’s workforce and today’s residents? What are the projected demographics for the future at reasonable milestones? I believe that no more than 17% of today’s Tysons residents less than 3000 of the current 110,000 workers. What factors will cause this to change to a higher number?

    What happens if the Task Force’s projections are wrong? What would this place look like with 200,000 workers, 100,000 residents if only 17% (17,000) residents also work at Tysons?

    Sensible people do not plan just for the best case scenario. Yet, this is what is occuring with the Task Force. It is irresponsible to assume that only best case happens. Who is left to pick up the pieces? And at what cost?

    TMT

  3. Jim Bacon Avatar
    Jim Bacon

    Dkuehn, I would suggest reading Ed Risse’s book “The Shape of the Future.” You can order through the Bacon’s Rebellion website: https://www.baconsrebellion.com/Books.php

  4. E M Risse Avatar
    E M Risse

    Dkuehn said:

    “Can you suggest a good book on human settlement patterns?”

    That is the question every author loves to hear!

    I am not sure it is a “good” book on human settlement patterns but so far as I know, ours — the one Jim Bacon mentions — it is the only one so far.

    We are working hard to complete a three volume work called TRILO-G that will provide more details on specifics. It will also be avaliable at BaconsRebellion.

    I am not sure if TMT was trying to answer your question but if he was:

    He provides appropriate warning about the gap between theory and pratice, and

    Demonstrates that current pratice is ages behind what we think is relevant.

    The quote TMT provides from the Tysons Task Force talks about Jobs / Housing balance. That is so last centruy.

    We argue there must be a Balance (note Capitalization) between Jobs / Housing / Services / Recreation / Amentiy. (See GLOSSARY for definition of Capitalized terms.)

    That five legged stool is very important. What is even more important is that one must start with creating Balance at the Cluster Scale, then the Neighborhood Scale, then the Village Scale and finally the Community Scale.

    Greater Tysons Corner could become an Alpha Community of 300,000 to 450,000 people if it included the Beta Villages of Vienna and McClean and four Villages at the four METRO stops now “planned.”

    The problem is that the task force — that TMT often rails about — has not even considered the need for Balance in the four METRO staion areas. It has no rational boundry for the Beta Community and no concept of the organic components of what might become an Alpha Community.

    Somehow just increasing density will “solve the problems.”

    That is why I tend to agree with TMT’s critiques.

    In my view:

    Contemorary “professional planning” Agencies — including most advocates of ‘Smart Growth’ and even ‘Smarther Growth’ advocates are using stone axes in an attempt to create a viable future.

    Development Enterprises are using iron broad axes to create the most short term profit for themselves. (That is what they are in business to do.)

    Citizens must find ways to bring the process into the 21st century.

    EMR

  5. E M Risse Avatar
    E M Risse

    Upon further review:

    The use of acient tools to symbolize the status of current settlement pattern pratice may not be appropriate.

    From 8,000 years ago — when there were a lot of stone axes in use and iron broad axes were state-of-the-art — until after 1865 in the US of A, the evolution of human settlement pattern followed an organic and logical path for the most part.

    The building forms — but more important the patterns and densities of land use devoted to urban activities — that evolved during this time span still are among those most valued in the market.

    Much of what happened up until 1920 falls in the same catigory.

    These are the buildings and places citizens spend billions to visit every year and spend even more to restore and duplicate.

    Few want to abandon the climate control, commications, safety and convenience technology that has evoled since 1920 but these can be retrofitted into the older structures and patterns of land use.

    Yes, there are beneficial applications of “highrise” technologh but those uses comprises a tiny fraction of the built environment.

    What has happened since 1920 has been the disaggregation of human settlement due to “space to drive and park Autonomobiles.” See PART IV of THE PROBLEM WITH CARS at db4.dev.baconsrebellion.com

    The settlement patterns incentivized by Fannie and Freddie have done as much as any single factor to render recent settlement patterns dysfunctional and unsustainable.

    EMR

  6. D.J. McGuire Avatar
    D.J. McGuire

    C’mon EM. The problem isn’t the choice of mortgages FNMA and FRMC chose to buy.

    It’s that they chose to buy any at all, which has been inflating home demand for years.

    You want to make sure history doesn’t repeat itself?

    Let. Them. Fail.

  7. E M Risse Avatar
    E M Risse

    D.J.

    You may be right in the final analysis but…

    The last 60 years has left such a deficite in Affordable and Accessible Housing that it may require some form of counter-intervention…

    Perhaps only for dwellings where there is a certified sites and services strategy and at least 50 percent sweat equity?

    Trickle down does not work and will not support democracy with a market economy.

    EMR

  8. Larry Gross Avatar
    Larry Gross

    I think unless it can be demonstrated that Freddie/Fannie discriminated in the way they treated mortgages from different kinds of houses and settlement patterns that the assertion is a bit tenuous.

    What's clear to me is that the folks who represent the Feds in housing and mortgages policy thought it good policy to encourage more home ownership – and the folks who made money off of mortgages were more than happy to accommodate as long as the Feds would buy the bundled mortgages.

    Our Government – agreed to buy mortgages called "liar loans" and similar where everyone and their dog knew that these loans were exceptionally risky but who cared as long as the Feds would guarantee them?

    and that's the good part. The bad part is than in doing this they flooded the market with homes – and encourage a speculative frenzy to supply more homes.

    Now.. the reality is that the folks who did not qualify for these mortgages – are walking away in droves as their loans go "upside-down" … and…worse.. even folks with good credit – that paid inflated prices for their homes – their homes have also gone "upside-down" and if they need to changed jobs or move – they are going to take a financial bath.

    All of these becasue this Administration could not resist letting the fox in the henhouse.

    same exact deal as the Savings & Loan debacle…

    I think it is a big problem when you have a political party that is pro-business and anti-regulation – when they get into office and they run amok gutting the safeguards that were originally put in place for good reasons.

    How many more candidates that say they are pro-business and anti-regulation do I want to vote for if they are telling me up front -that they oppose regulation?

    I think Freddie/Fannie .. COULD have encouraged more home ownership BUT not relaxed requirements.

    What this would have done was limit the size and price of homes to be truly more "affordable" to those of more limited means.

    But the market does not really want to sell actual MODEST affordable homes.

    The market wants to sell 2500 square feet, American Dream single family detached that cost twice as much as what folks of limited means can truly afford,.

    So.. we let the folks who sell home decide to NOT build truly affordable homes – because why should they if Freddie/Fanny are going to insure essentially all comers for the 2500 square foot home?

    Do I trust business to not corrupt government for it's own benefit?

    No.

  9. Groveton Avatar
    Groveton

    “I think it is a big problem when you have a political party that is pro-business and anti-regulation – when they get into office and they run amok gutting the safeguards that were originally put in place for good reasons.”.

    I haven’t read the WaPo article yet but wasn’t the relaxation of mortgage requirements a policy of the Clinton Administration? That certainly is my recollection.

  10. Larry Gross Avatar
    Larry Gross

    I think you are probably correct since Clinton sort of played to anti-regulatory ideas also.. NAFTA and all..

    and certainly the Dems are not immune from responding to businesses that don’t like regs….

    ..though Clinton did hang tough on environmental regulation…

    but the question to be answered is not when the mortgage rules were relaxed but when Fannie/Freddie changed THEIR rules with respect to buying sub-prime loan bundles.

    It was only when the Feds essentially promised to buy/insure such loans that we crossed the line.

    As long as Mortgage companies would eat the bad loans – the relaxed rules basically left it up to them if they wanted to do dumb stuff -but when the Feds got in the game… things went nuts…

    Someone… okayed Freddie/Fannie buying subprime loans

    who did and when did this happen?

  11. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    I think I posted these in another topic on the bond crisis.

    Just remember this when the sheriff throws you out because it’s no longer economically viable to pay your loan. You are providing a valuable service to the country by providing someone else a taxpayer subsidized affordable home.

    http://www.huduser.org/Publications/pdf/subprime.pdf

    http://www.nhi.org/online/issues/125/goingsubprime.html

    The GSEs are increasing their business, in part, in response to higher affordable housing
    goals set by HUD in its new rule established in October 2000. In the rule, HUD identifies subprime
    borrowers as a market that can help Fannie Mae and Freddie Mac meet their goals, and also help
    to establish more standardization in the subprime market.

  12. E M Risse Avatar
    E M Risse

    Larry Gross said:

    "I think unless it can be demonstrated that Freddie/Fannie discriminated in the way they treated mortgages from different kinds of houses and settlement patterns…"

    You have this backwards.

    If F / F did "discriminate" then you could examine if they did it right.

    They did not "discriminate" they just hyper fueled the dysfunctional pattern.

    Larry, it is all about Pattern and location.

    In the 30s FHA "discriminated" against mortgages on houses in flood planes and on odd shaped lots and without water and sewer and without access to public roads and poor construction specs and …

    All good "discriminations" in the 30 and thru to 50s (VA joined in with regs after WW II)when states and municipal Agencies had few regs.

    When F / F came into existance state and muni Agencies had state building codes and muni Agencies had land use controls to address the worst problems BUT

    Those very muni land use controls are a core cause of dysfunctional settlement patterns

    F / F needed regs that relate to patterns and densities of land use at the Subregional and Regional scales and they did not develop them.

    "… that the assertion is a bit tenuous."

    What is "tenuous" is your grasp of the importance of location and settlement pattern.

    In your later response to Groveton you say the core problem with F / F was the subprimes loans.

    No one will say subprime loans are a good idea — without sweat equity mechaninsms etc. — but if those subprime loans had been on sound dwellings in GOOD LOCATIONS (vis a vis J / S / R / A, with functional patterns and densities of land use at the Dooryard and Cluster Scale then it would be a personal problem for the one who could not make the payment but someone else would want the unit.

    As we noted back in March the problem is the LOCATION of the forecolosure concentrations.

    "What's clear to me is that the folks who represent the Feds in housing and mortgages policy thought it good policy to encourage more home ownership"

    True and as Rbt Samuelson points out home ownership is not an end all.

    " – and the folks who made money off of mortgages were more than happy to accommodate as long as the Feds would buy the bundled mortgages."

    Right on

    "Our Government – agreed to buy mortgages called "liar loans" and similar where everyone and their dog knew that these loans were exceptionally risky but who cared as long as the Feds would guarantee them?"

    Right on

    "and that's the good part. The bad part is than in doing this they flooded the market with homes – and encourage a speculative frenzy to supply more homes."

    All true

    "Now.. the reality is that the folks who did not qualify for these mortgages – are walking away in droves as their loans go "upside-down" … and…worse.. even folks with good credit – that paid inflated prices for their homes – their homes have also gone "upside-down" and if they need to changed jobs or move – they are going to take a financial bath."

    Yes but if these places were not concentrated in bad location far from J / S / R / A the problem would not be so bad as to shake the entire economic structue of this and other nation-states.

    "All of these becasue this Administration could not resist letting the fox in the henhouse."

    I agree

    "same exact deal as the Savings & Loan debacle…"

    Exactly.

    "I think it is a big problem when you have a political party that is pro-business and anti-regulation – when they get into office and they run amok gutting the safeguards that were originally put in place for good reasons."

    What are called "free markets" by some REQUIRE a sound regulatory environment to function. They also require a safe and secure society. There are not many free market opportunities in Somolia. The small / no government folks tend to forget this.

    There must be Balance — the four legged stool we note below.

    "How many more candidates that say they are pro-business and anti-regulation do I want to vote for if they are telling me up front -that they oppose regulation?"

    Sorry you had to vote for any.

    "I think Freddie/Fannie .. COULD have encouraged more home ownership BUT not relaxed requirements."

    Well it would have been better but you still needed the LOCATION / settlement pattern requirements.

    "What this would have done was limit the size and price of homes to be truly more "affordable" to those of more limited means."

    They did this through the good works of the Fannie (and Freddie?) Foundation.

    They gave tens of thousands of dollars to support 'smart growth' but gave hundreds of millions of dollars to support Business-As-Usual.

    "But the market does not really want to sell actual MODEST affordable homes.

    "The market wants to sell 2500 square feet, American Dream single family detached that cost twice as much as what folks of limited means can truly afford,."

    We say it all the time, most profit per unit…

    "So.. we let the folks who sell home decide to NOT build truly affordable homes – because why should they if Freddie/Fanny are going to insure essentially all comers for the 2500 square foot home?

    "Do I trust business to not corrupt government for it's own benefit?

    No."

    That is why there must be four legs on the stool — Agencies, Enterprises, Instituions and the New Forth Estate. See THE ESTATES MATRIX.

    EMR

  13. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    http://www.icic.org/atf/cf/%7BC81898B2-76E9-4A18-B838-A3F65C9F06B9%7D/ICICReport_ForeclosuresInnerCityFINAL%20080421.pdf

    “Yes but if these places were not concentrated in bad location far from J / S / R / A the problem would not be so bad as to shake the entire economic structue of this and other nation-states.”

    If we all just cram ourselves together, everything will be just fine. Exactly what we need, more socialist pap.

    The government wanted to increase homeownership, especially for the disadvantaged. They directly intervened into the economy an engineered demand to implement their policies that took effect around 2000.

    http://mysite.verizon.net/vodkajim/housingbubble/

    They used America’s belief in upward mobility and achieving The Dream as catalyst in a socialist experiment to “float all boats”. And like every feel good program, they failed to consider the ramifications of their actions. Whether it’s EMR’s matrix or inept engineering, attempts to harness the randomness of life usually end with the oxen sh!tting on the masters of the rein.

  14. Larry Gross Avatar
    Larry Gross

    In terms of settlement patterns and F/F .. I have two problems.

    1. – the first is that I don’t see how they had any effect at all on settlement patterns one way or the other.

    2. – more important, if this is true, what specifically is the mechanism and what would have to be changed at F/F for them to condition their mortgages to achieve the effect of better settlement patterns?

    What got them in trouble first and foremost was a fundamental irresponsible in buying mortgages that were bad risks and this seems to have occurred uniformly across different kinds of housing and settlement patterns… at least to me.

    Even if you had a F/F that did limite loans to ONLY “approved” settlement patterns – if they still took on risky mortgages, they’d still have defaults if people could not make their payments.

    let’s turn this around and look at it the other way…

    Suppose F/F had not loosened standards and required full proof of employment as well as 20% equity.

    What would have kept that pool of home owners from buying “sprawl” homes?

    Just the act of requiring stricter standards would not affect where folks bought homes.

    You’d have to have a “rule” that said that no mortgages would be granted to people who bought sprawl homes – no matter how well qualified they were.

    … and this would mean that the Government – would be getting into the business of defining what “sprawl” is or is not .. and what “balance” is and is not – even when neither term has widespread acceptance and agreement to start with.

    How would you ever convince a regulator that he/she should deny loans on the basis of “balance” when virtually all of them probably have no clue what it means?

    all due respects – EMR – you’re gonna have to lay out a much more persuasive argument.. to folks who have yet to become true believers.

  15. Anonymous Avatar
    Anonymous

    “You’d have to have a “rule” that said that no mortgages would be granted to people who bought sprawl homes – no matter how well qualified they were.”

    And how would you verify that that rule worked any better than sprawl?

    What was it EMR said about not being able to support a market economy and democracy?

    RH

  16. E M Risse Avatar
    E M Risse

    Larry Gross said:

    "In terms of settlement patterns and F/F .. I have two problems.

    "1. – the first is that I don't see how they had any effect at all on settlement patterns one way or the other."

    Your ability to understand location issues takes me back to my youth:

    To supplement my parents income during high school I worked as a guide and for-hire back packer (aka, Sherpa) carrying goods to and from remote places and guiding folks who wanted to hike a little used trail, climb a mountain, go fishing and, infrequently, go hunting. I recall a client who engaged us to take a young fellow elk hunting. This hunter was “seriously interested” in one of the clients college age daughters and to impress this Montana family he had talked about his hunting prowess. (The daughter was later Homecoming Queen at a Big-10 school, not quite a Homecoming Queen at an SEC school, but you get the Idea.)

    At the dawn of a bright cool morning in late October a friend and I set the young hunter up on a rocky promontory overlooking a meadow. Then we circled around and jumped a nice five point bull and a small herd of cows and half grown calves. They headed for high ground across the meadow as we thought they would. To our surprise, we heard no shots, so we followed the tracks out into the open meadow. Standing in fresh tracks not 75 yards from where the hunter sat cradling a borrowed 300 H&H I asked if he had seen any elk.

    “No,” he said, “I have not seen a thing but some chipmunks, red squirrels and a pine martin. This fellow knew his wildlife but had apparently not seen eight or nine tan and brown animals with white rumps weighing from 150 to 600 pounds crossing a football field sized meadow. Later that morning he also did not see several Mule Deer that tracks indicated were in his field of vision. We shared lunch with him and found he was a vegetarian. Chances are he later started a PETA chapter but he did not marry the Homecoming Queen.

    Moral of the story: People see what they want to see.

    "2. – more important, if this is true, what specifically is the mechanism and what would have to be changed at F/F for them to condition their mortgages to achieve the effect of better settlement patterns?"

    If F / F had set up criteria for loans based on the criteria that Fanny Foudation used for grants to support intelligent settlement patterns it would have been a good start.

    "What got them in trouble first and foremost was a fundamental irresponsible in buying mortgages that were bad risks and this seems to have occurred uniformly across different kinds of housing and settlement patterns… at least to me."

    Yes, bad risks but look at the concentrations of foreclosuers, not the red herring tossed out by CNN et. al.

    How about the poor orphan subdivisions on VA Route 28 in Fauquier County. There is no chance in hell there will ever be an easy way to get to a concentration of jobs from those units — other that construction jobs to build other badly located dwellings.

    "Even if you had a F/F that did limite loans to ONLY "approved" settlement patterns – if they still took on risky mortgages, they'd still have defaults if people could not make their payments."

    One more time: LOCATION. They may have been risky applicants but with functional settlement patterns someone else would buy the dwelling at a slightly lower cost. That is Darrell of Ches. point.

    If the dwellings are in dysfunctional locations — or the wrong size for the real need as you well stated then the write down is huge before someone will buy the dwelling.

    The overarching problem is not the fact of foreclosure, it is the number of foreclosures and the cumulative amount of the writedwon.

    "let's turn this around and look at it the other way…

    "Suppose F/F had not loosened standards and required full proof of employment as well as 20% equity.

    "What would have kept that pool of home owners from buying "sprawl" homes?"

    I have no idea what "sprawl" means or what "sprawl homes might be. I do know what homes in dysfunctional locations are and for them I just answered the question above.

    "Just the act of requiring stricter standards would not affect where folks bought homes."

    If you go back as look as what we have written that is what we have been saying, F / F needed to have new, beyond FHA / VA standards.

    "You'd have to have a "rule" that said that no mortgages would be granted to people who bought sprawl homes – no matter how well qualified they were."

    There is that word again.

    "… and this would mean that the Government – would be getting into the business of defining what "sprawl" is or is not .. and what "balance" is and is not – even when neither term has widespread acceptance and agreement to start with."

    Just what was argued by the opponents of FAH in the 30. Now every state and almost every Muni with any housing demand has those regulations. As we point out in "The Role of Municipal Planning in Creating Dysfunctional Human Settlement Patterns" the 30s regs are now a big part of the problem.

    "How would you ever convince a regulator that he/she should deny loans on the basis of "balance" when virtually all of them probably have no clue what it means?"

    And they will not as long as you sit on a rock and say you cannot see the relevance of Location.

    "all due respects – EMR – you're gonna have to lay out a much more persuasive argument.. to folks who have yet to become true believers."

    No, I will not try to offer further perspectives on this point until you agree you can see more than chipmunks and an occasional pine martin.

    EMR

  17. E M Risse Avatar
    E M Risse

    Darrell Ches said:

    (Quoting EMR)

    “Yes but if these places were not concentrated in bad locations far from J / S / R / A the problem would not be so bad as to shake the entire economic structue of this and other nation-states.”

    (and then stating:)

    “If we all just cram ourselves together, everything will be just fine.”

    There is no connection between these two statements. Where have you found a quote from EMR advocating patterns and densities that “cram” anyone?

    As Jim Bacons points out from time to time, he has never in 20 years found us advocate any patterns and desities that are not those most favored by the market when buyers have a choice.

    We also advocate that all location-varible costs are fairly allocated. This seems to upset some who would like to continue to ride the subsidy gravy train.

    “Exactly what we need, more socialist pap.”

    We are not sure why you advocate socialism and then call it ‘pap’

    By the way as we have noted in our comments to Larry Gross, you are right that foreclosures do make units avaliable to new buyers as lower costs.

    That is not a bad thing for society as a whole except when there are so many foreclosures and they write down the cost of dwellings in dysfunctional locations.

    As to the political goal of home ownership, Rbt Samuelson has a good perspective on this as we have noted in the past.

    EMR

  18. Larry Gross Avatar
    Larry Gross

    In order for F/F to implement a rule/law regarding what kind of properties it would accept for mortgages – it would have to have a clear and specific "map" of what properties "qualified" as "functional" and which ones were designated as "dysfunctional".

    This would be like taking an existing MSA and re-defining it for the purposes of "balance".

    What you are missing EMR is any kind of semblance of the above.

    You are essentially "hand waving" the issue by saying that you have defined what dysfunctional is – and is not ….. virtually no one else understands what you're advocating.. and your response is that it is up to someone else to reform F/F to deal with the problem.

    Remember… there are tons of banks and other financial institutions that are free to negotiate mortgages on what basis is financially beneficial to them.

    If someone has a good employment record, good credit & score record and provides 20% equity and they want to live in a home in that is said by you to be in a dysfunctional settlement pattern – why would that bank not go forward with such a transaction?

    What would stop them from doing so in a free market economy?

    It's not that I cannot "see" EMR – it's that I do "see" inefficient settlement patterns – but I don't understand how you change the "value" of homes in such patterns and as long as those homes have value in a free market economy – people will buy them and banks will loan money for them.

    You can "designate" them as not located in a functional settlement pattern til the cows and the trophy deer come home – but it won't change the demand for them.

    but as a start EMR – most of us have no clue for a given metro area which parts are and are not considered functional to start with.

    When I see a geographic map of the Wash Metro area, I think about your body of work and I try to visualize a color overlay of that area that would show functional vs non-functional…

    until I start to "see" something along those lines … I doubt seriously that those who would need to take actions based on that map.. have a clue either.

    Somewhere -the "academic" has to transition to practical…or else it just stays forever as an academic concept.

  19. Anonymous Avatar
    Anonymous

    People see what they want to see. Scientists go measure what’s out there.

    RH

  20. Anonymous Avatar
    Anonymous

    How about the poor orphan subdivisions on VA Route 28 in Fauquier County? The county deliberately planned density in that area because they didn’t want it alng 66 in the north of the county. And the county historically has specifically NOT wanted jobs, because they bring people and houses. They are deliberately using the lack of jobs and transportation to minimize the growth in that area. the people who bought there new what they were buying into.

    RH

  21. Anonymous Avatar
    Anonymous

    “he has never in 20 years found us advocate any patterns and desities that are not those most favored by the market when buyers have a choice. “

    Haven’t you advocated 10 DU per acre? On artificially constructed concrete pads in the sky over the highway?

    I wonder why the market never offered that choice. Such statements are meaningless when you define what is “most favored” and you define what amounts to “choice”.

    The choices are out there,the prices are out there, and the locations are out there. People do make rational choices about distance and travel costs vs home price and location. They are just not the same rational choices that you might make, or that you would prefer them to make.

    Of course, we can always encourage other people to do as we wish, using subsidies that we pay for. Or we can punish them into doing as we wish with negative subsidies which we claim as payment for some perceived externality.

    ————————-

    “the write down is huge before someone will buy the dwelling.”

    The banks learn an expensive lesson and someone gets a nice home for what it is really worth.

    RH

  22. Anonymous Avatar
    Anonymous

    Aren’t there already such a thing as transportation, or location, or energy efficient mortgages?

    RH

  23. Anonymous Avatar
    Anonymous

    “Conventional EEMs increase the purchasing power of buying an energy efficient home by allowing the lender to increase the borrower’s income by a dollar amount equal to the estimated energy savings. The Fannie Mae loan also adjusts the value of the home to reflect the value of the energy efficiency measures.”

    Good grief. You get 2X credit for energy efficiency: once on your income and once on the value of the improvements. And of course we know what sgoing to happen to all that “extra money”. It is going to be spent on do-dads and granite countertops.

    RH

  24. Anonymous Avatar
    Anonymous

    “as long as those homes have value in a free market economy – people will buy them and banks will loan money for them.”

    I think that pretty much says it. Energy costs will change the value of those homes over time. So will job availability, transportation, and the existence of other homes.

    RH

  25. Anonymous Avatar
    Anonymous

    “(as long as the additional [energy efficient] costs do not exceed $4000 or 5 percent of the value of the home, up to a maximum of $8000, whichever is greater). “

    I guess that leaves out the $65,000 solar panel array. $8,000? That won’t even buy a decent set of storm windows.

  26. Anonymous Avatar
    Anonymous

    “You may qualify for a home mortgage when you thought you couldn’t or be eligible for a larger loan than you expected based on the purchase of a home in a location efficient community.

    The Location Efficient Mortgage®‚ (LEM) is a mortgage that helps people become homeowners in location efficient communities. These are convenient neighborhoods in which residents can walk from their homes to stores, schools, recreation, and public transportation. People who live in location efficient communities have less need to drive, which allows them to save money and improves the environment for everyone. “

    http://www.locationefficiency.com/

    ———————-

    Subsidy anyone?

    RH

  27. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    “be eligible for a larger loan than you expected based on the purchase of a home in a location efficient community. “

    Isn’t that kind of how we got into this mess? If the suburbs are dysfunctional, why is it a plain fact for anyone with eyes that the central cities are a vast wasteland? I’ve regularly posted links to numerous reports, some from the government itself. Evidently I’m the only one who bothers to read them, because I see the same sort of dialog on other blogs that I see here.

    This entire episode had nothing to do with functional and dysfunctional neighborhoods. It began with safety and security, something the cities still can’t provide. Without a system of debt the cities would have dried up a long time ago. But now the money’s gone and no one has the means to pay it back. Growth based on kickbacks is a shallow foundation.

  28. Jim Bacon Avatar
    Jim Bacon

    Darrell, You said, “If the suburbs are dysfunctional, why is it a plain fact for anyone with eyes that the central cities are a vast wasteland?”

    Governments have been subsidizing the flight of the middle class out of central cities for six decades. The explanation for high crime and poor schools is demographic — that’s what you get when the poor are trapped behind.

    End the subsidies and you’ll see affluent people pouring back into the central cities, displacing poor people into the aging, decrepit suburbs. As the poor people migrate, social problems will follow them, along with the cost to municipal government of dealing with those problems.

    Even without ending the subsidies, that migration is taking place.

  29. Anonymous Avatar
    Anonymous

    “Governments have been subsidizing the flight of the middle class out of central cities for six decades.”

    I don’t think that idea is even close to being proven.

    Which governments? Where do they get their money? From the people they are subsidizing?

    But Darrell is right. He picked up the reason that I posted those two quotes: It is exactly the same kind of resoning that got us into the housing mess to begin with. Only it is wrong if it subsidizes moving to the suburbs and right if it subsidizes moving to someplace more PC.

    The idea that people will pour back into the aging, decrepit, poorly run, dirty, and unsafe cities and displace poor people to the leafy but aging suburbs is simply wishful thinking.

    If the middle class can’t afford to live in the suburbs, how are the poor going to do it?

    RH

  30. Jim Bacon Avatar
    Jim Bacon

    Ray,

    On the issue of governments subsidizing the flight from the city, the case has been so thoroughly documented that I’m not inclined to debate it. I’d recommend reading “Crabgrass Frontier.”

    As to your comment that my reasoning leads to subsidizing “some place more PC” than the suburbs, no, it doesn’t lead to such a conclusion at all. My reasoning leads to the idea of getting people to pay their location-variable costs, which means creating a level playing field between city and suburb. Simply leveling the playing field will accelerate the move back into the city that is already happening.

    Finally, you ask, if the middle class can’t afford to live in the suburbs, how can the poor? The poor *are* moving to the suburbs. Census tract data demonstrates conclusively that the many of the subdivisions built in the 50s and 60s are declining in relative value. Affluent people are moving out, and poor people are moving in. When poor people move in, the decline in property values accelerates because poor people don’t have the means to keep things up. As property values rise in the cities and are driven down in the suburbs, the migration of poor people from the one to the other.

  31. Anonymous Avatar
    Anonymous

    Give me a break. Really, I don’t see a single thing that governmnent has “given” me since I moved out of the city.

    You want to subtract out all the subsidies that cities get and see what is left?

    It is meaningless argument because we have no idea how to level the playing field, as ample discussion on this blog has shown. How do you charge for location on water supply vs sewer supply, vs power supply, when the source of the service is in three different directions? How do you charge for location relative to job or school, when job or school changes every three years? Location variable costs is a joke.

    But I still don’t get it. Your argument on the one hand is that affluent people are fleeing dysfunctional places – meaning the costs of living there no longer match the benefits. It is either more expensive to live there, or they figure they can spend the same amount and get more stuff by living in the cities.

    If they get more stuff living in the cities, what does that say about city subsidies. If they can’t afford to live in the suburbs do to high personal transportaton costs, what does that say about suburban subsidies?

    And if they can’t afford to do it, how can poor people afford it? They can’t, but they will get priced out (by your theory).

    Sure, old subdivisions like the one I lived in in Alexandria are declining in relative value: the houses are older: Duh. New subdivisions have much larger houses. My Alexandria house is not small, but it would fit inside the garage of some of these new homes.

    My point in th eposts above was that people were suggesting F/F should have standards for efficiency and location: well, they already do. And the idea is to get people more house than they could otherwise afford, which as darrel points out is what we think got us in trouble the first time.

    More advertising of something for nothing. More subsidies for urbanized areas.

    RH

  32. Anonymous Avatar
    Anonymous

    “Sociologists have long claimed that leaving behind high-crime, low-employment neighborhoods for the middle-class suburbs buoys the fortunes of impoverished tenants. An article in the July/August edition of The Atlantic Monthly, however, cited findings by researchers at the University of Memphis that crime in Memphis appeared to migrate with voucher recipients. More broadly, a 2006 Georgia Institute of Technology study found that every time a neighborhood experienced three foreclosures per 100 owner-occupied properties in a year, violent crime increased by approximately 7 percent.”

    Fight crime: increase home ownership.

    RH

  33. Anonymous Avatar
    Anonymous

    Here is an example of circular logic concerning “unfair subsidies”

    Emphasis mine

    “Mitigate the Unfair Transit Subsidies”

    “Seven New York City bridges and two tunnels yield an annual surplus of more than $500 million for the Triboro Bridge and Tunnel Authority, which operates them. The surplus is used to help cover deficits in the city’s bus and subway systems and suburban commuter rail lines. The concept is good — mass transit supported by tolls on automobiles. But the formula needs revision to help repair an unfair distribution of subsidies between city and suburbs.

    …….

    Riders on city buses and subways pay 60 percent of those systems’ operating costs, while riders on suburban Long Island and Metro-North trains pay only 50 percent of the railroads’ operating costs. In other words, suburbanites with their higher average incomes get a bigger subsidy than city residents. A fairer sharing of bridge and tunnel profits could help redress this inequity. “

    But wait a minute here. Isn’t it the suburbanites with their higher average incomes that drive the cars that subsidize mass transit? Presumably the auto drivers are paying their costs plus almost half of everyone who rides transit as well. What is wrong with thme getting a little more of their own subsidy back?

    As Samuelson said: nothing in economics is as it seems.

    RH

  34. Anonymous Avatar
    Anonymous

    In New Jersey, Suburbs meet their affordable housing requirements by contributing to the cities. More Burb to city subsidies.

    “As for regional contribution agreements, the legal term for suburban subsidies for urban projects, I submit they are an ingenious, practical, typically American solution to a difficult social and economic problem. They do not satisfy absolutists who want to see teacher aides and letter carriers living next door to hedge fund managers and rock stars, but in creating housing, RCAs create multiple winners.

    The suburbs win, of course. They do not have to find room for as many affordable units as the Council on Affordable Housing says they must provide. The people who buy or rent the units win. There is so much demand for the units that they must be allocated through lotteries. The cities win, too. Boy, do they ever.

    More than 50 cities, including Paterson, Garfield and Passaic in North Jersey, have been willing partners in RCAs. Paterson received nearly $8 million from Wayne toward construction of 455 units, at $17,500 per unit. Garfield received more than $3 million from various towns for 136 units. Trenton built an astonishing 1,400 homes. Newark, New Brunswick and Jersey City have also benefited handsomely.”

    http://www.northjersey.com/opinion/moreviews/19127794.html

    RH

  35. Anonymous Avatar
    Anonymous

    Even the Sierra Club gets in on the act.

    “In some areas of the United States, metropolitan area sprawl is largely a consequence of flight from central cities, but in other parts of the country net population growth is playing a larger role in exacerbating sprawl. “

    ……….

    “A growing body of research shows that many communities are subsidizing new development in the form of new roads, water and sewer lines, schools, and emergency services.(6) Communities are also subsidizing growth by offering incentives to new businesses or industries that locate there, often sacrificing tax revenues needed to serve existing residents and businesses.”

    OK, so explain to me how providing new services for new businesses and new people associated with actual population growth is a “subsidy” any more than providing old services to existing residents is a subsidy?

    ————————

    “Pendall found that smart-growth solutions, which focus on channeling growth into areas with existing infrastructure, were effective at slowing sprawling growth regardless of its cause.”

    (31% of sprawl is caused by population growth, according to the Sierra Club.)

    Is there anyplace with sufficient existing infrastructure to abosrb a 31% increase in population? Isn’t that what adequate public facilities laws are all about? given that the new population will get services, is it any more of a subsidy to piggyback them onto existing services (cram them in) than to just build new?

    RH

  36. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    http://www.luc.edu/cuerp/pdfs/ChicagoTribune-Youngsingles,Hispanicshelpcityavoidshrinkingf.pdf

    http://oseda.missouri.edu/regional_profiles/data_trends_popest_2007.shtml

    Net migration into the city? MINOR.

  37. Anonymous Avatar
    Anonymous

    Darrell is right. There is a lot more work going on to figure out how to subsidize urban residents to either help them move out, or otherwise subsdize them so thaat they can avail themselves of the benefits of the suburban areas.

    No doubt someone will call that a subsidy to suburban areas, too.

    RH

  38. Anonymous Avatar
    Anonymous

    Jim bacon and I are not the only ones to argue this:

    Ed Glaeser writes:

    “Poor people come to cities because urban areas offer economic opportunity, better social services, and the chance to get by without an automobile. Yet the sheer numbers of urban poor make it more costly to provide basic city services, like education and safety, and those costs are borne by the city’s more prosperous residents. Taking care of America’s poor should be the responsibility of all Americans. When we ask urban residents to pick up the tab for educating the urban poor, then we are imposing an unfair tax on those residents. That tax artificially restricts the growth of our dynamic cities.”

    And Tyler cowen responds:

    “It is fair to say that urban dwellers receive higher positive and negative externalities from their neighbors, relative to suburbanites. I’m not sure why the bundle as a whole is unfair, least of all to the wealthier city residents (or why there is so much talk of unfairness to the wealthy in the first place), or for that matter why it is a significant marginal distortion. The net value of the externalities is surely positive for people who live in cities and pay the higher rents. All taxes involve some distortions but it seems like what is essentially a tax on city land does not involve a higher distortion than the average tax, if anything the contrary. What’s really the case for lower property taxes and higher federal income taxes, combined with a move against federalism?

    If there is any unfairness, maybe it is toward the people can’t afford to live in desirable cities but would like to. If we lower the property tax burden in cities, rents will rise and this problem will become worse rather than better. The more general point is that urban land owners, not all residents, benefit disproportionately from good policy changes. Urban improvements have unfair distributional effects by the very nature of city land.”

    Who is really subsidized? Maybe urban vs Suburban is looking in the wrong place. Farmers in france get as much as half of their income from subsidies, so they are less likelyto sell their lands for sprawl.

    RH

  39. Larry Gross Avatar
    Larry Gross

    I’m not buying RH’s continuing advocacy of explicit subsidies for the flimsiest of reasons … most of which are little more than unsupported claims at best.

    Sometimes I think he’d subsidize the color red or blue.. if it yielded more dollars for the beneficiaries.

    but I do also do not buy the “who flung dung” approach of claiming “externalities” either – for the same reason ….

    it’s clear that urban areas benefit from electricity subsidies – from electricity generated from afar …. blasting mountaintops off… then distributing it – both the power loss AND the “use” property for powerlines.

    I could make the case that Spotsylvania County has two big Nukes – not for the county – but for NoVa since they generate enough power for more than a million people and Spotsylvania has but 113,000 people.

    tell me where I’m going wrong on this location subsidy issue…

    do we classify Spotsylvania as an Urban Support Region?

    and .. do we consider Urban Support Regions, in general, to be subsidies for urban areas?

  40. Anonymous Avatar
    Anonymous

    “….if it yielded more dollars for the beneficiaries.”

    Nope. Transfer payments yield no net social benefit. It would have to yield more dollars to the beneficiaries, after they covered the costs to the disbeneficiaries. It has to provide a net social benefit, in other words.

    This is difficult, but not impossible to measure, but we are not even close to making an attempt to do so. We are still at the point of making irrational political claims without foundation.

    I do NOT support subsidies, in general, but I do not automatically think all subsidies are necessarily bad. We use subsidies and negative subsidies to counteract market failures (and to provide a lot of other protectionist nonsense, too.)

    I agree with Larry’s example about the Spotsylvania Nukes: we could have put them where the Mirant Plant or Blue Plains is, but there are too many voters there, and the risk is too high. It would be possible to agree on the value of putting them in Spotsylvania vs Alexandria, but it would not be easy.

    Still, to say that sprawl exists because of the many subsidies it supposedly recieves, without considering the many countervailing subsidies that cities recieve, is oversimplifying things considerably.

    We frequently point to Europe’s supposedly superior management of sprawl, open space, and transportation, but we don’t mention that all of this is done with command and control legislation, and funded by huge subsidies.

    RH

  41. Larry Gross Avatar
    Larry Gross

    from a location subsidy perspective – the folks who live in Spotsylania (and commute to NoVa jobs) ..

    … this is going to make EMR’s ears curl – they are living closer to where the electricity is produced so they are receiving much less location subsidies – at least for electricity.

    what about this folks?

    EMR? thoughts?

  42. Anonymous Avatar
    Anonymous

    I’ve made a similar argument. On any given day, our power might come from Niagara Falls or Wheeling West Virginia, or Lake Anna, or a local peaking plant. Any given location is better for some things than others.

    We can figure out every externality and call it a subsidy. We can bill each other back and forth ad nauseum until every perceived slight is compensated, but at some point the transaction costs are greater than the damage prevented, and we are better off just splitting the check. Even if it is perceived as being unfair, it is still better than the alternative.

    ————————

    I believe that EMR’s starting point is simply that open space is the most important thing in the world. Everything else in his theories is more or less a fabrication to support that position.

    He is probably right. Open space cleans our water and air (if we don’t abuse it too much), feeds all the flora and fauna that support us (one way or another), provides our timber and meat, it keeps us humble, and gives us peace.

    The locational cost argument is expressly designed to make living near open space so expensive no one (except the very rich) can afford to do it. But then he turns around and argues that the high cost of urban dwellings proves that this is what the market wants. But by his own argument the cost of living in “dysfuntional areas” (seemingly, anyplace that isn’t fully paved) should be a lot higher, which would prove THAT is what the market wants.

    I think we need to preserve open space, too. I just don’t think we need to put it in a museum to do it. I don’t see any point in locking ourselves into artificially created, heated, cooled, lighted, ventilated, supplied, electrified, irrigated and sewered, concrete people warrens, just so the squirrels can run free on the open space we saved.

    To me, the paradox is that to preserve open space best, what we need to do is find, and allow, those things that we can most profitably use it for.

    So, there is a lot of profit in high density places, and EMR argues that this is the best use of open space: use as little of it as possible to make the most social profit.

    So, in the end we agree about what needs to be done. But how does making a few Tyson’s landowners very rich help out the rest of the people who are now (more or less required) to sit on open space for decades or centuries while the Tyson’s of the world develop and work through their planned densities?

    What happens when you have built the “Last Tsyon’s” you have met your “Total Sustainable Quota” and no more building can be allowed? How do the remaining open space holders get paid then?

    I think it is going to take subsidies. In order to keep open apace, there has to be a profit in holding open space that is EQUAL or MORE than the profit in developing it.

    In terms of profit, we should be indifferent between owning five million in Tysons Real estate, and owning Five million in Fauquier real estate. Instead, we have developed rules (subsidies) that make owning five million in Tysons worth a lot more than owning five million in Fauquier.

    We have taken all the profit out of open space and put it in more, and more, and more densely developed spots. EMR suggests that not only do should we take the profit out, we should charge a lot more (10x for “locational costs”)

    Then we wonder why those with open space want to sell. We wonder why they are “disgruntled”, to use the Fauquier Democrat’s term, over “property rights”.

    ——–

    So, if the most social profit comes from fully developing a Place like Tysons, then how do we share that social profit such that people like TMT are mollified: indifferent between one outcome and the other.

    If you paid TMT $50,000 to accept Tysons, how long could he pay what he thinks are his costs due to Tyson’s? What benefits might he get someday, and what is the right discount rate so that he can collect for them today?

    I think it is going to take money. A lot of money. So much money that the Tyson’s landowners can’t afford it: there won’t be enough profit left.

    What does that tell us?

    It tells us we overestimated the social benefit of highly dense places: there isn’t enough profit to pay off all the losers that accrue from a policy that creates places such as Tysons. Or Southeast.

    In other words, some lesser level of density is better, overall. It tells us that EMR has overpriced open space by making it the single most important thing in his line of argument.

    What Jim Bacon and others see as subsidies to suburbanization, might actually have made sense. We might have gone TOO far, especially consdering todays energy costs, but overall, the downside of sprawl may not be nearly as bad as some think: we didn’t build (and maybe subsidise) all this stuff for no reason at all.

    Too think it is ALL dysfunctional, and ALL locationally challenged, is probbly a gross overstatement.

    RH

  43. Larry Gross Avatar
    Larry Gross

    isn’t the basic argument that if you don’t live and play near where you work…. that you are wasting precious resources??

    … and that.. if you “sprawl” – by definition – you are not living and playing near where you work?

    isn’t this about “efficiency” and “waste”?

    Clearly – there are millions of acres of vacant land – property rights or not – that are not in demand for development.

    Only those vacant lands in closer proximity to urban job centers are at issue to “save”.

    i.e. there is no reason to “save” 10,000 acres 10 miles west of Farmville, Va.

    There are no hordes of people scrambling over top each other to erect 3000 square foot high-end palaces with granite countertops.

    so.. this kind of “open space” does not need to be preserved.

    agree?

    I don’t buy the location subsidy concept unless I can see what things are claimed… some real examples… etc…

    and F/F could not begin to make rules along these lines unless it too … had some way of evaluating “efficient” settlement patterns.

    … which has ..again.. in my mind…virtually nothing to do with the credit worthiness of those applying for mortgages – however.. I am open to someone making a cogent argument… but cogent to me means much more than hand-waving assertions….

  44. Anonymous Avatar
    Anonymous

    “Clearly – there are millions of acres of vacant land – property rights or not – that are not in demand for development.

    Only those vacant lands in closer proximity to urban job centers are at issue to “save”.

    i.e. there is no reason to “save” 10,000 acres 10 miles west of Farmville, Va. “

    Precisely.

    But for those lands closer in there is plenty of Market, if only it was allowed to develop. Some landowners will have their property “saved” but it will cost them – personally – tens of millions in lost value.

    Who is being subsidized in this case?

    “F/F could not begin to make rules along these lines unless it too … had some way of evaluating “efficient” settlement patterns.”

    Precisely. And development patterns take decades to develop and assess. Even if you had a model, how would you ever be able to validate it?

    “isn’t the basic argument that if you don’t live and play near where you work…. that you are wasting precious resources??”

    I dunno. Is that a waste or a use? I live slightly farther than the average commute from my job. But I have the skills, resources, ability, and desire to do SOMETHING with the farm, which might otherwise sit fallow. What I do winds up contributing tens of thousands to the local community (but not much to me).

    Considering the total picture is my travel a waste, or a boon to the local community?

    To me, wasted travel is travel that ends up in nothing _ the store doesn’t have what I need. Or the value of the trip is not worth what it costs.

    The fact that I MIGHT have made a shorter trip IF I lived someplace else and PAID a lot more, doesn’t mean the longer trip is a waste.

    RH

  45. Groveton Avatar
    Groveton

    “We frequently point to Europe’s supposedly superior management of sprawl, open space, and transportation, but we don’t mention that all of this is done with command and control legislation, and funded by huge subsidies.”.

    I doubt anybody really familiar with Europe would argue that point. In fact, none of the many western Europeans I have known for decades would argue that point.

    And that is my point too. America can achieve Europe’s settlement patterns but not through free market means. I have always suspected that EMR knows this. However, I wonder sometimes about Jim Bacon’s arguments. He seems to see some future with less regulation, smaller government and more functional settlement patterns. Presumably this is some offtake on Adam Smith’s invisible hand. In other words, if all the subsidies were identified and eliminated then the invisible hand of the free market would push people into functional settlement patterns. It has that theoretical purity that Republicans love. But like a “black box radiator” in physics the idea of completely free markets is a hypothetical illusion. Both are useful ideas for understanding theories but neither actually exist. Adam Smith knew he was preaching theory. He was providing an aid to understanding, not a planning tool. For example, the idea of free markets requires a symmetrical level of information exchange between buyer and seller. If the information exchanged is asymmetric then neither that transaction nor the market which allowed it represent free trade. This is why insider trading is a felony with regard to stock transactions. However, the equivalent of insider trading is completely legal with regard to cars, real estate, purchases of electricity, etc.

    In theory, Jim Bacon’s belief that free markets can achieve functional settlement patterns may be true. In reality, that theory falls down. So, if you really want functional settlement patterns then you have two choices:

    1. Empower the government to implement top down land use policies that cause the perceived functional patterns to occur, or …
    2. Create a level of information transparency where the asymmetry of information between buyers and sellers is so small that it does not exert a material influence on the market.

    Europe, obviously, has made choice 1.

  46. Anonymous Avatar
    Anonymous

    I think it boils down to how, where, and when information is converted to money. As you point out with the example of stock market vs car market, we are inconsistent in what is allowed: what are our porperty rights, including even intellectual ones.

    Tyson’s Developers may be right in asserting that their plan is good for TMT: his property will become worth more, even if his quality of life declines and he pays more taxes.

    That doesn’t do him much good right now.

    My beef here is that assymetric information is used to promote policies that are perceived (by some) as being more functional.

    But it is the market that decides what is functional. If we think we can empower the government to think for us, and expect good results, we are kidding ourselves.

    The government is (partially) a political animal, and our political parties are in the business of providing assymetric information.

    Policies that cause a perceived goodness to occur might be valid corrections for market externalities (hidden knowledge) or they might just be outright subsidies.

    How would you ever know, without information transparency?

    RH

  47. Jim Bacon Avatar
    Jim Bacon

    Groveton, I’ve never suggested that laissez-faire in real estate and transportion is feasible, or even desirable, so you’re really attacking a straw dog.

    What I am suggesting is that real estate markets need to shift from the current mix of government/marketplace in the direction of a greater role for the market.

    Command-and-control may work for the Europeans, but it’s not without a significant downside. What the Europeans have gained in energy efficiency and lower pollution, they have given up in housing affordability.

    Europeans also don’t have the same respect for consumer sovereignty that we have in the United States. Most Americans believe that people should be free to choose how and where they live (the only ones who disagree are those who want to impose their own vision upon others). The key, as I keep harping, is to make people pay the location-variable costs of their choices. Live where you want — just don’t ask anyone else to pay for it.

    Government is a necessary part of this process. Someone has to create the rules we all play by. Only government can create zoning to separate obviously incompatible land uses. Only government can devise and enforce environmental regulations. Only government can tie roads, highways, subdivision streets, rail lines, buses, etc. into a cohensive transportation system. Government also has a role in providing public infrastructure (roads, water, sewer) and public services (schools, public safety, etc.) that all impact upon property values.

    Laissez-faire markets will not create functional human settlement patterns — although I doubt they would screw things up as badly as what “planning” managed to do. Rather, what I propose is freeing up developers and home builders to build the kinds of communities for which there is a huge latent demand, and allowing people the freedom to choose to live in those communities or not.

    I believe we’ll end up with much more energy-efficient human settlement patterns as a result. If not, then it’s only because people don’t put the same value on energy efficiency as the social engineers.

  48. Larry Gross Avatar
    Larry Gross

    with respect to Tysons –

    tying this conversation to Tysons

    what would be the location-variable costs?

    and how would you deal with these from a free market approach as opposed to a command & control approach?

    or… how do you get density.. more efficient.. less location-variable subsidies without a command & control approach?

  49. Groveton Avatar
    Groveton

    I question whether the full location variable costs for Tyson’s could ever be calculated. There are the obvious “big tecket items” like roads, sewers, etc. As TMT has chronicled, the ability to calculate these costs seems to be evading the Tyson’s Land Use Task Force. And these are the obvious costs.

    Then there are the less obvious costs. Larry has written about the costs of new school construction associated with residential development. What ratio would one use to determine the number of school aged children who will live in an as-yet-unbuilt 20 story high rise with a mix of one, two and three bedroom units?

    Next in line are the environmental concerns. More construction means more runoff to the Potomac and, ultimately, to the Chesapeake Bay. What part of the clean up costs for those bodies of water should be allocated to the construction in Tyson’s?

    There are the payments of existing subsidies that comprise the majority of my rants. If Tyson’s is going to be developed in a manner where the residents and businesses pay for all of their location variable costs, why should they pay any subsidy to any other place for their location based costs? One presumes that the walkable community of New Tyson’s will require less roadway per capita than the scattered development of, say, Fredricksburg. I assume that the residents of New Tyson’s will be able to file for returns on their gas taxes. And neither income nor purchasing bears any obvious relationship to location variable costs. So, I assume that the residents of New Tyson’s will be excused from the Fairfax County Sales Tax surcharge.

    Then, there are still less obvious points. Given that residents of the New Tyson’s will be relatively affluent and given that affluent people tend to commit fewer crimes then less affluent people (or at least get caught less often) then why should the residents of The New Tyson’s pay for the excessively criminal behavior of a scofflaw locale? In addition, The New Tyson’s will have security camers on all the streets making law enforcement more efficient. Will there be a rebate for that? And what if smoking was banned in The New Tyson’s? Would there be a rebate for the lower health care costs?

    What value should be ascribed for existing infrastructure?

    The only real way to do this would be to sell the right to collect taxes and the responsibility to perform all government services for The New Tyson’s to a private company. The private company would collect the taxes, provide the services and render a small portion of the taxes for non-locality based services to the state. Of course, this would require that the state calculate and disclose the actual costs of providing services to the people of The New Tyson’s vs. the amount of money taken in via taxes. And there isn’t a single politician south of Prince William County who will ever agree to that.

  50. Larry Gross Avatar
    Larry Gross

    excellent commentary.

    Let me ask this.

    If every new worker in a densified Tysons – lived in Tysons – what would be the location variable issues?

    now .. flash back to reality

    what are the location variables for all the Tysons workers who will not live there and instead will commute from places like Culpeper, Warrenton and Fredericksburg?

    Now.. tell me how you would deal with THOSE location variables.

  51. Anonymous Avatar
    Anonymous

    “More construction means more runoff to the Potomac and, ultimately, to the Chesapeake Bay. What part of the clean up costs for those bodies of water should be allocated to the construction in Tyson’s?”

    Why would this be true?

    Tysons is already nearly fully paved/constructed. How much more can run off?

    RH

  52. Anonymous Avatar
    Anonymous

    “The key, as I keep harping, is to make people pay the location-variable costs of their choices.”

    “Only government can tie roads, highways, subdivision streets, rail lines, buses, etc. into a cohensive transportation system. Government also has a role in providing public infrastructure (roads, water, sewer) and public services (schools, public safety, etc.) that all impact upon property values.”

    So it is government that decides what the location variable costs are – and who will get them.

    Along with who gets the increased property value.

    Only if ALL the costs associated with developing Tysons (full allocation of loction variable costs) accrue directly to the owners (STRICT APF), and ALL the property value increases accrue to them (full allocation of location variable benefits), can this work.

    I submit that the costs of developing Tyson’s (to this extent) are so high that the developers cannot afford to take on the full costs. Furthermore, I submit that the full locational benefits will not be restricted to that location: they will spread around as if by osmosis.

    Therefore demanding full locational costs for Tyson’s owners amounts to a subsidy to those outside that (too narrow) system boundary. People outside the boundary will see property values increase, but they may have no way to collect on their increased value for a long time (and they may feel as if they are taking a life-style hit). And if government “encourages” investment in Tysons to recover its costs they may never get their turn in the barrel. Until this is addressed there is way too much political baggage for this to go forward (absent the fix being in): people like TMT will fight it tooth and nail.

    So, you have political assymetry, and you have no way to assess the full locational costs, let alone tap into the full locational benefits.

    My conclusion is that if you could assess full locational costs you would get LESS of what Bacon thinks will happen: no one person or even corporation can afford it. Some other arrangement will be found to be “more functional”.

    —————————–

    “If not, then it’s only because people don’t put the same value on energy efficiency as the social engineers.”

    Well, how do the social engineers come up with their values, pull them out of a hat? The way to do that is to put it on the market and see what values people actually place.

    You get so many carbon credits. We figure out how much carbon we can afford to emit, globally, every year and divde that by 3 billion people. (Or decide how much the US is going to emit to keep the economy running, regardless, and divide by 300 million).

    You can then choose to live close to work in a tiny apartment and a) sell your excess credits to the power company for cash, b) put them under the mattress, secure in the knowledge you are saving the environment, c) sell them to some long distance solo SUV commuter.

    Then the social engineers will know what energy efficiency is “worth”, compared to everything else.

    Now, all you need is a system like that for property rights, and Tysons can take care of itself. maybe dense, maybe not, but whatever it is will be what works.

    RH

  53. Anonymous Avatar
    Anonymous

    “The only real way to do this would be to sell the right to collect taxes ….”

    Some people have suggested that the government just sell density rights and zoning changes outright. To the highest bidders. Everyone else benefits from lower taxes as a result of the sales (provided developers have to provide their OWN infrastructure).

    Once again, I submit that such a plan would shift the risk and expense to the landowners and less dense development would result.

    RH

  54. Anonymous Avatar
    Anonymous

    “then why should the residents of The New Tyson’s pay for the excessively criminal behavior of a scofflaw locale? “

    Isn’t this precisely the problem with our cities now? Cities are attractive to poor folk and criminals (not necessarily the same, but often). Suburbs don’t help pay for the additional costs imposed on the cities, but they benefit by making an exodus.

    Cities provide much higher levels of social services (except maybe schools).

    Where is the subsidy?

    RH

  55. Larry Gross Avatar
    Larry Gross

    and what about the folks who will work in a denser Tysons but not live there… in fact.. live in places like Warrenton, Culpeper, Fredericksburg?

    What should be done about the infrastructure that they will need to get back and forth between their homes in the outer suburbs and Tysons?

    What kind of infrastructure should be built in and around Tysons to acommodate their cars – and who should pay for it?

    Do these folks that live in the exurbs and commute to Tysons – benefit the folks who already live in Tysons or do they contribute to even more traffic.. more congestion.. more degradation of just getting around in Tysons..??

    What benefits do the existing residents of Tysons get in this scenario?

    What could/should be done to address the adverse impacts of a commuting workforce?

  56. Anonymous Avatar
    Anonymous

    “What could/should be done to address the adverse impacts of a commuting workforce?”

    First you have to describe the entire system you are studying.

    Before you go off and assume that a commuting workforce has adverse effects, you need to consider their positive effects. Take a few different scenarios and price them all out, and then you can decide what is adverse and what isn’t.

    I’d suggest that you would need to look at a sample of working commuters and consider ALL of their inputs and outputs. Where do they get their money, where do they spend their money, what are their positive and negative externalities.

    Then, you draw the system boundary so it includes all the entities that provide inputs and outputs: employers, grocers, babysitters, etc.

    Next, examine a sample of non-commuting resident workers, and do the same thing. Consider their entire budget, and everything they depend on that isn’t in the budget: all the externalities.

    You might be able to draw the boundaries of the system as a geographic circle around the samples, but I doubt it. More likely if you draw such a phYsical boundary you would discover inputs and outputs that reach outside the geographic designation. Maybe 90% of transactions fall within that physical boundary, and that might be close enough. If you could do that, then the non-commuters and commuters would each be a subset of all workers.

    It would be better to ignore physical boundaries and just examine economic ones: where does a families income and expenditures reasonably stop? Maybe you pick something like three transactions beyond the original, which is similar to what economic development people claim as a multiplier.

    Either way, take all the inputs and outputs of the commuters and replace it with all the inputs and outputs of the noncommuters.

    Then, add up the total difference for everyone in the system of (3? – 6?)transactions or everyone inside the geographic circle.

    Then you could say whether or not a commuting workforce had negative impacts.

    You might find, that if they tried to live in Tyson’s they would inflate the cost of housing there, and they (along with the previous non-commuters) would have less money to spend on other things. They might spend less on cars, but they would probably still have one.

    You might have less commuting traffic but that is only a fraction of the total, so you would have more baseline (60%) traffic, which otherwise is dispersed to far out locations.

    Not having that 60% additional traffic would be one benefit to the existing residents of Tysons. Tyson’s employers may get benefits, too. They might not have to pay as much to attract people.

    And the people who provide services near home for the commuters would be out of luck. Some of that spending would be moved closer in, but some of it would just be lost. Certainly to the providers, it would be a loss.

    I don’t think you can say with certainty that one scenario would net out as worth more value than the other, overall, and focusing on one aspect (commuting) is certain to give a false answer.

    You might need to try out several scenarios before you begin to zero in on one that is most functional.

    ————————-

    Practically speaking, nothing is going to be done about the infrastructure, even in and around Tyson’s, let alone between all those places and Tysons. Therefore either none of us will pay for it, or we will all pay for it and still do without. Depending on your point of view.

    Tyson’s will be the middle of the Petri dish. When the human amoeba runs out of resources, it will run out in the middle first, and the die-off will start there and move outward.

    RH

  57. Larry Gross Avatar
    Larry Gross

    this is not near so complicated.

    You already have the boundaries.

    and we already have some idea of the impacts of folks who live close to a Tysons job and the impacts of folks who commute.

    what else would you need to look at – in the context this Tysons proposal?

    TMT has stated that they are awaiting the VDOT study – a key study that will yield important information about what levels of infrastructure will be need – for both those who live local and commute.

    what would the the other issues besides infrastructure and Levels of Service impacts?

    using your theories.. how would we approach development like Tysons but in other locations?

    You cannot build something without understanding the impacts of access and mobility…

    you cannot build something without building the necessary infrastructure unless you then want to claim that “gridlock” will “choke” economic vitality.

    It’s a really dumb approach.

    You build dense.. without figuring out how much infrastructure or how to pay for it – and then you turn around and say that if additional infrastructure (now 10 times more expensive) is not added – that “gridlock” will kill the economic benefits.

    DUH!

  58. Anonymous Avatar
    Anonymous

    “You already have the boundaries.”

    No, you don’t. Not even close, and that is the whole point. You are making suggestion for policy that we know almost zilch about what the true net consequences will be.

    But, since you are focused on only one (traffic), and you think it is the one with the highest value, then you can simply ignore everyone else.

    I don’t buy it. I think you have to at least ask the question, and take a fair cut at the answer. you are almost certan to be wrong if you just presume the answer.

    Maybe you are right, and a rough first cut is highly indicative. Fine, in that case I have no argument, and forge ahead. You might not need to complete the analysis to know the answer qualitatively.

    But at least write down what the unknowns and perceived level of uncertainty are: conditions may change and those flags will be important remainders of WHY we did something. Otherwise, policy is likely to become a legacy and an entitlement, long after it has lived its useful life.

    —————————-

    “how would we approach development like Tysons but in other locations?”

    I suggest that if you used my approach you would find out there is no way to make Tyson’s pay. There or anyplace else. The complexity of the infrastructure drives the price faster than the density can pay it back, and it is undesireable anyway.

    You would give up on Tyson’s and kill that Turkey with a club. You are not going to get the infrastructure Tyson’s really needs unless we take all of the Washington area and all of Metro back to the drawing boards and start over. We are not thinking anywhere near grandly enough to make that thing fly, and I don’t see any hope that someone with enough vision can make it happen.

    I’m thinking Teddy roosevelt and the Panama canal, lets-start-a-war-if-we-have-to, vision.

    Short of that, I think it is fundamentally nuts to buld a place bigger than Warrenton or Fredericksbug: the humanity and community scale just gets all out of whack. And I suspect the economics does too.

    Yes you are right, I believe that if you figure out how much infrastructure you need, the economics will kill it, and if you DON’T provide the infrastructure, the gridlock will kill it anyway.

    Solution: don’t build it. Do as New England did with their power supply, and just make it go away. Admit to ourselves that the reason we build in greenspace is that it is in fact cheaper (up to a point).

    We should figure out what is (not dense enough, and whatis (too dense), and focus on that.

    Instead we try to prevent all building everywhere by unrealistically insisting that a couple of hundred years of existence be fully self- capitalized up front, while conveniently ignoring all the taxes paid for NO services for a few decades. That has got to be the stupidest, nmost one-sided idea I ever heard of. Yet it is an extremely popular because it has been sold, and sold effectively.

    I wonder who sells the lemmings? The guy out front, or the guy hanging back?

    RH

  59. Anonymous Avatar
    Anonymous

    I said it before:

    Policies that cause a perceived goodness to occur might be valid corrections for market externalities (hidden knowledge) or they might just be outright subsidies.

    How would you ever know, without information transparency?

    You absolutely must ask (and attempt to answer) the question “Where is the net social benefit in this plan?”

    Otherwise, you cannot be said to be even seeking the greater public good, and you are almost certain to be wrong in your choices.

    Besides that, it is the law and official policy, in most cases.

    If you are unwilling to ask that question and seek a fair answer, then what is fiscally responsible, politcally conservative, or environmentally sensitive about wasting other people’s money in order to promote your own narrow special interest?

    RH

  60. Larry Gross Avatar
    Larry Gross

    doesn’t the Tysons proposal have identified boundaries?

    Isn’t that the question that is on the table?

    are you just ignoring the proposal on the table and turning it into something that is not on the table?

    Isn’t the way that this works is that a proposal is made and then you evaluate that proposal?

    I do think traffic is one of the issues – even the pro-development folks claim that too much traffic is not good for development… so there is general agreement that it is an important consideration.

    I’m not ruling out other considerations either.. but I DO think that you have to make your case – SPECIFIC to Tysons if you are to make any headway on the other things you allude to – otherwise it just becomes a purely theoretical/academic exercise not related to the real world way of doing developments.

    right now.. VDOT does traffic impact analysis – from which – we determine some idea of what scope and scale of infrastructure will be needed to provide an acceptable level of LOS.

    Even developers agree that this needs to be done…

    are you saying that it should not be done because much more important issues are not being addressed?

  61. Anonymous Avatar
    Anonymous

    the Tyson’s proposal may very well have boundaries; construction boundaries where their work ends.

    But I think TMT’s whole argument is that the effect of this work will fall far and wide outside those boundaries, and it is the total effect of the project which must be evaluated. I believe your question about long distance commuters also points out that the shadow is a lot longer than the building is high.

    I don’t think there is any point in simply evaluating a proposal – against itself. At the very least you would want to evaluate it against “do nothing”. If you really believe all this fuctional patterns stuff, then you ought to have a model that says “this is what we believe is the optimum” and you can compare against that.

    But, you would have to make that optimum known, through some kind of “standards based zoning” as Jim Bacon has peviously described.

    I would argue that a big part of the problem is that all the other “requirements” are nowhere articulated, until it comes down to negotiation. Both the developers and the public would be etterserved if the process was far more transparent. Developers need something better to work to, so they know what the full requirements are.

    Like a rocket launch, there should be a checklist, that is tied to the countdown. As long as you meet each gate, you are good for the next decision. You know what the gates and the decision criteria are in advance. If you miss a gate, lift off is postponed. If you can’t meet the criteria it is canceled. The process to launch needs to be far more transparent, and far more predictable. It might also be a lot more complex, and a lot more strict, but as long as you meet the (strict) requirements, there is no saying “no”.

    ———————

    When VDOT does their traffic analysis, is it confined only to the Tysons development area? If not, then how do you decide how far the consequences reach? Do you make Tyson’s responsible for a new Park ‘n Ride in Leesburg?

    RH

  62. Larry Gross Avatar
    Larry Gross

    The traffic study .. indeed all/other infrastructure studies are first – relative to the proposal.

    They have to START there.

    It would be like planning a bunch of buildings but not checking to see if you have large enough water/sewer pipes…AND enough capacity to supply the water and treat the sewage.

    The traffic studies will START the same way.

    What will be the impacts inside and adjacent to the proposal.

    Again.. you need to get answers to the immediate infrastructure questions BEFORE you expand the study out to other areas.

    Doing the localized infrastructure needs is complicated enough.

    What you are advocating is a macro-study… in essence …to show that other accrued benefits might overshadow infrastructure deficits.

    It don't work that way RH.

    You don't build if you cannot provide adequate water & sewer nor ..at least enough road infrastructure to prevent certain gridlock – no matter what other benefits are provided..because building with overflowing urinals are unacceptable no matter how much "wealth" they create.

  63. Anonymous Avatar
    Anonymous

    are first – relative to the proposal.

    Idiocy. You start with a proposal out of thin air, and then study what kind of infrastructure you need to make it work.

    There is no comparison to anything else. How can you possibly know whether this proposal is more or less functioanl than anything else, except what you already have?

    No systems engineer or financial analyst works this way.

    ———————–

    “to show that other accrued benefits might overshadow infrastructure deficits.”

    Or not. You assume that I am pro things that I am not.

    But, it is the governments job to make sure that it’s policies provide a net social benefit. If not, then they are a subsidy to one group or another, and a waste of government money, and other public resources.

    It is the government’s job to protect people and their property, and it is the government’s job to prevent discrimmination (for or) against minorities. To protect people and their property the government cannot allow assymetric policies that create hidden or non-market subsidies or penalties that apply only to some.

    If you only examine one problem or listen to one group, when it is obvious the impacts are larger than that, then you are promoting discrimination, and assauliting people’s property.

    You are right, it does not work that way, but it damn well should: it is the only ethical way to do government business. Besides, policy and law says it should work that way: the only reason it doesn’t is when politics takes over rational thought.

    RH

  64. Larry Gross Avatar
    Larry Gross

    re: “No systems engineer or financial analyst works this way.”

    you’d be dead wrong.

    you START with a FEASIBILITY STUDY and then if that passes the test, you move on to specifics… of how much will it cost.. and is it economically viable.

    Government has a responsibility NOT to raise taxes on people to provide profits to others.

    you think they do.

    If someone wants to build something that will use publically-provided infrastructure – without paying their fair share to maintain it at acceptable levels – they should be denied.

    this is why they call it a “proposal” RH and this is why the burden is on the applicant to prove a positive cost-benefit – not the folks who will be impacted.

    this is where you have it totally bass-ackwards.

    you think that it’s up to the folks who will be impacted to prove that the proposal does not provide a positive cost-benefit and no.. it does not work that way – and it should not work that way.

    this is like saying that the supporters of Tysons will go forward unless those impacted can prove that it causes more harm than benefits.

    If what you advocate was true – then anyone could make any proposal anywhere.. or worse have a “by-right” to do it.. and those impacted would have no choice by to pay higher taxes to provide the infrastructure the new development would need.

    RH – it will NEVER work this way.

    Not in Fairfax. Not in NoVa. Not in Va. Not in the US.

    Not as long as people have the right to elect the folks who will allow or disallow development proposals.

    Your “share” of the existing infrastructure is not determined by you – but by the folks who already have paid for it and own it.

    If you want some of that infrastructure – they have the right to set the rules for you to get some of it.

    it is not discriminatory as long as the rules are the same for everyone – including themselves.

    it’s only “discriminatory” in the minds of those that think that the folks that want the infrastructure can also set the terms…

    Under your way of thinking.. any proposal… no matter how big or how much infrastructure would be needed would be “by-right” and exiting people would have to pay whatever tax increase would be necessary to provide the infrastructure – no matter what the growth rate – 1% or 10% .. and if those folks could not longer afford the taxes.. tough.. let them move…

    whenever you can convince enough folks that this is a fair way to develop.. you’ll prevail….

    good luck..

  65. E M Risse Avatar
    E M Risse

    Note to readers:

    A lot of bytes spilled here. Several useful observations and a lot of attempts by 12.5 Ers to justify their past actions.

    As a general rule when someone says: “What EMR is saying…,” “What EMR means…, ” “What EMR thinks..” (other than Jim Bacons and often Groveton) is mealy an attempt to belittle and discredit EMR.

    As we will point out in a new post, the bailout of Fannie and Freddie confirms how far the US of A has drifted from a democracy with a market economy.

    No one is yet even talking about the real problem with Freddie and Fannie – putting billions into a dysfunctional Agency backed system to put the wrong size house in the wrong location (aka, the Affordable and Accessible Housing Crisis).

    And no one in this string of comments even attempted to contradict the impact of Fannie and Freddie on the Affordable and Accessible Housing Crisis.

    They said they did not believe it but then we do not believe they yet have a suffently comprehensive Conceptual Framework which would allow them to process the facts.

    As we will also point out Agency programs related to housing demonstrate a bipolar oscillation between IRRATIONAL EXUBERANCE and pandering populism on the road to what Jared Diamond calls Collapse.

    EMR

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