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Tuesday, October 30, 2007


The Cato Institute have produced an interesting article on government planning & its high failure rate.
Everybody plans. But private plans are flexible, and we happily change them when new information arises. In contrast, special interest groups ensure that the government plans benefiting them do not change — no matter how costly.

.... Chaos science reveals that very tiny differences in initial conditions can lead to huge differences in outcomes — that's why megaprojects such as Boston's Big Dig go so far over budget.

Long-range plans fail because planners have no better insight into the future than anyone else, so their plans will be as wrong as their predictions are

...Some of the worst plans today are so-called growth-management plans prepared by states and metropolitan areas. They try to control who gets to develop their land and exactly what those developments should look like, including their population densities and mixtures of residential, retail, commercial, and other uses. "The most effective plans are drawn with such precision that only the architectural detail is left to future designers," says a popular planning book.

About a dozen states require or encourage urban areas to write such plans. Those states have some of the nation's least affordable housing, while most states and regions that haven't written such plans mostly have very affordable housing. The reason is simple: planning limits the supply of new housing, which drives up the price of all housing and leads to housing bubbles.

In states with growth-management laws, median housing prices in 2006 were typically 4 to 8 times median family incomes. In most states without such laws, median home prices are only 2 to 3 times median family incomes.

Few people realize that the recent housing bubble, which affected mainly regions with growth-management planning, was caused by planners trying to socially engineer cities.

I have discussed before the question of getting rid of most building restrictions & making type certification a function of central government (which would thus make off site mass production feasible). If our planning systems are not more restrictive than in the more controlled US states then our housing costs could also be reduced to 40% of the present level by cutting planning restrictions. If our restrictions are more onerous & if mass production became easy cutting housing costs to 20% seems perfectly feasible.

Of course such a "house price collapse" would leave a lot of people feeling poor even though it is just a paper loss & a lot of bankers & building societies screaming to be protected from negative equity. Tough. The world should not guarantee bankers a living - this is what went wrong with Japan's economic miracle - the government protected bankers from a property collapse by lending them trillions at nearly, sometimes actually, zero interest & therby chocked off funds for real investment.

If anything I have less sympathy for the building societies. They were formed last century specificly to help ordinary people get houses. They must know that it is possible to produce cheap homes but use their lobby muscle to preserve the present expensive system & their hands around the necks of ordinary mortgage seekers.

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