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Smarter Urban Growth
October 3, 2001
Daniel B. Klein, Randal O’Toole


David J. Theroux

Good evening, ladies and gentlemen. My name is David Theroux, and I’m the president of The Independent Institute. I want to welcome you all to our Independent Policy Forum program this evening.

As some of you know, we conduct Independent Policy Forums about monthly. The forum is a series of lectures and debates and panel discussions on important public policy issues, and they’re held here in our conference center in Oakland.

This evening, the title of our program is “Smarter Urban Growth: Markets or Bureaucracy?” And we’re very privileged to have two urban economists joining with us as our speakers. Again, those of you who have not seen them yet, this is one of the two books we’re featuring by Randal O’Toole. It’s called The Vanishing Automobile and Other Urban Myths, which I highly recommend. The second book is called Curb Rights by Daniel Klein, our other speaker. And if you can, I would highly recommend that you get both books, because they’re very unique and germane to our topic.

For those of you who are new to the Institute, hopefully you received a packet when you registered. You’ll find information about our publications and our other events. You’re also welcome to give us your e-mail address, because we have a weekly e-mail newsletter that we send out, which you might find of particular interest. It also alerts people to upcoming events and many studies we do, and so on and so forth.

The Institute also publishes a journal called The Independent Review. Both of our speakers have been authors in The Independent Review (“Curb Rights: Eliciting Competition and Entrepreneurship in Urban Transit,” by Daniel B. Klein, Adrian T. Moore, and Binyam Reja; “Is Urban Planning ‘Creeping Socialism’?”, by Randal O’Toole). And the policy is that the doors will be “locked” until everyone here subscribes, so that’s just a fair warning.

Our program this evening, in the aftermath of what is, as we all know, a horrific calamity—especially in New York, a horrific urban calamity—also relates in some ways to the topic of tonight as far as how we deal with urban problems.

There are a lot of things you can say about these topics, and I’ll leave that to our speakers—but a couple of things I just wanted to point out was that here in the Bay Area during the last decade, new housing construction barely kept up with demand created by the population growth of the area. With the number of new jobs created, about 70,000 new international residents entered the Bay Area, not including residents who are already citizens.

In the East Bay, were are more than five times the number of jobs created as there were homes built in 1999. The number of new housing units in the East Bay actually declined 21 percent between 1997 and 1999.

The reason for this lag is a proliferation of housing and land-use controls that prevent new construction, adjustment of existing units and so on, and these include growth controls and density restrictions and many other policies.

The consequence, of course, has been to bid up the price of the existing stock of homes and rental units at an incredible rate, even with the economic downturn. It’s amazing how resilient the prices have been.

For example, apartment rents rose 44 percent in Alameda County and 36 percent in Contra Costa County from 1993 to 1999, and other Bay Area counties have been far worse.

So, with high and rising housing costs, as well as what has become suffocating traffic congestion—some of you have traveled from across the bay, and you are well aware of this—pollution and a wide range of other issues, there have been various proposals that have been made to deal with this.

One serious proposal is called “Smart Growth,” which will be addressed in part tonight, which is essentially a proposal for government-mandated high-density urban living and public transit, of course, subsidized by taxpayers.

The question though is: how exactly can we deal with problems in a way that is actually going to be productive? Do we just mandate government policy and have people adhere to that, or would that cause even worse problems?

Our first speaker is Daniel Klein. Dan is an Associate Professor of Economics and General Director of the Civil Society Institute at Santa Clara University. He has also been a research fellow at the Independent Institute. He’s a contributor to a book we have coming out from the University of Michigan Press this winter called The Voluntary City, and in your packet there is an insert about that book.

I also want to point out that the center that Dan is joint director of has just published this monograph called, Why is Housing So Expensive in Silicon Valley? And I highly recommend this. I believe it is also on your Web site too, is that right? So anyone interested in that can get more information from Dan about that.

Dan received his Ph.D. in Economics from New York University. He has been a visiting fellow at the Social Philosophy and Policy Center at Bowling Green, Bowling Green State University. He’s been a visiting scholar at the City University in Stockholm, Sweden. He’s been an Assistant Professor of Economics at UC Urvine. He’s also been a visiting scholar in the Department of Economics at Stanford.

In addition to Curb Rights, his other books and monographs include: What Do Economists Contribute?, Reputation, A Plea to Economists Who Favor Liberty, Assurance and Trust in a Great Society, and Three Libertarian Essays. His articles have appeared in many journals, and I’m very pleased to introduce Dan Klein.

Daniel Klein

Thank you. [Applause.] I was told I needed to speak into this mainly for recording purposes. Good evening. Nice to be here. Nice to see you.

I wrote that book with two graduate students, and what we say in this book—I’m going to say in a minute about what we say in this book and then not say much about this book. We seized on the insight that a real important resource in urban transit markets, especially route-based vehicle markets—buses, jitneys—is bus stops, congregation areas for passengers, curb zones for the vehicles. We realized that that’s a real important piece of the puzzle, and what we essentially do here is propose the privatization of bus stops, and of curb zones, and bus stations, and have lease-holders of the curb zones contract with carriers to provide transit services.

Now this is a somewhat novel idea, if I may say so, and I think actually makes a lot sense. It’s sort of way outside the 40 yard lines of the discussion. Right? I mean, they can’t even privatize the buses, for the most part. They’re not about to privatize the bus stops and sidewalks!

I invite you to look at this, but what I thought I would do tonight is actually give a more general sort of the wisdom from transportation economists on urban transit issues, not specific proposals. And I made up that lengthy handout to give just sort of the ground zero—what I would consider a ground zero—understanding of this.

I’m going to try to keep this brief and roll through this handout that I gave you. Maybe it’s best to focus our attention up here. You can look at the handout later, when you want to refresh yourselves afterward.

So ideas for improving mobility and public policy, I’m taking a lot of my material from Wendell Cox’s website. He uses all the standard data sources. Very good site here:

Friends of Wendell’s include Tom Rubin, here, and Randal O’Toole. These guys both do urban transit as much as I do, so these guys are probably actually more on top of a lot of this than I am.

Density and Transit

All of these slides make one simple point, so we’re going to just roll through them. This is millions of vehicle kilometers per square mile of public transit. There is a U.S. thing over there. It’s just so small.

The situation in the U.S. is profoundly different from much of the world. People ask, “Why is America so rich?” And there are a few reasons why you might explain why America is so rich. And people say, “Well, it’s the biggest county. It’s one of the freest countries.”

One of the important reasons America is so rich is because it was developed in the age of the automobile, and the automobile is an incredible form of communication and transportation, unbelievably powerful. And we—our urban form—was developed in that age to a great extent, our suburbs, even back east. That’s one reason we are so rich. Trying to make us like Europe, like so many of the urban planners and transit planners want, is actually sort of retrogressive.

This is public transport passenger kilometers over motorized automobile passenger kilometers. The U.S. is tiny compared to the rest of the world. We have a completely different situation here, thank goodness.

Public transport use and population by U.S. metropolitan sectors, we’ve got fairly high numbers of public transport boardings only in the cores, not in the suburbs, which increasingly our urban areas are. There’s no longer the urban structure of the dense downtown and sort of spreading from there. Everything is very dispersed and increasingly so.

This is Atlanta. Employment location of greater Atlanta, the central business district is only that much. These are five “edge cities” that are noteworthy, and then everywhere else. Increasingly, there is no urban form.

U.S. core population density in that center column, New York: 10,000, Chicago: 4,700—those are exceptional in the U.S. They have rail systems that cover their operating costs, or nearly cover their operating costs. Building rail in these other places is really a remarkable thing. If you compare it to these to other cities in the world, like Tokyo and Paris, the conditions are extremely different.

Why Automobiles Rule

Why is the automobile so wonderful? Here are some reasons: (1) It’s remarkably flexible in so many ways. It travels to all points known to man and pavement. It goes when you want to drive it, and it’s there for you, waiting for you until you’re ready to drive it. It goes door to door. You can go with or without your pals in the car. You don’t have to make transfer stops, waiting or anything of that sort.

(2) It’s much faster than other modes of urban transit. (3) Its costs and affordability in America are very good, and automobile access by driver licensed aged people is approaching saturation. Ninety percent of driver licensed aged people have a license, and 90 percent of those people have access to an automobile, so it’s actually bumping up to the ceiling. That’s one reason why traffic congestion won’t keep continually getting worse, because all potential drivers practically have come up to have their car, and so you can only go so high.

(4) Energy use: it’s very good relative to rail and the other forms. (5) Seat availability: compared to a bus; sometimes you have to stand on a bus. (6) Comfort. (7) Reliability. (8) Security. (9) Very important, freight and storage. You can go shopping at the supermarket with your car a lot easier than you can if you take the bus. (10) Privacy, and (11) cars are also forms of shelter, places where you might sleep in, in a pinch, or make love or do all sorts of other things that cars are famous and appreciated for.

And that’s why the U.S. urban public transit market has been shrinking. From 1945 to 1995, it’s down to about 2 percent of travel. The automobile has triumphed.

Light rail and rail systems are a bane. They’re lousy forms of mobility. This is passenger miles per route mile 1996 compared to freeway lanes. They don’t move people nearly as well, nearly as much.

San Jose does a particularly awful job. Here’s compared to freeway lanes, the darkened areas, I think, something like 9 percent of what the freeway lane would achieve, and anytime you put down a rail line, you could have put down pavement and given people a highway lane or two, or an arterial street with lights and 7-11s and stuff. Those are better for mobility too.

Wendell Cox did this wonderful study of new rail projects. This is kind of complicated, but I just want to bring your attention here. This is annualized cost per new public transport passenger. And as Cox says, why don’t we just rent people BMWs? [Laughter.] Why don’t we just lease all these potential new public transport riders BMWs? It would be cheaper.

This is a figure from my book, “Earnings, that is to say revenues, of all modes of public transport—we go up to 1992—is only 31 cents on the dollar.” So it’s a huge loss-making enterprise, paid of course by taxpayers.

A Desire Named Streetcar

Why the continual push for rail transit? Despite the fact that it’s a lousy form of mobility, it hurts the poor, it hurts the poor’s mobility for a whole bunch of reasons—partly because rail projects tend to cannibalize bus systems, the public bus system, which is actually a better, and cheaper, and more powerful form of transportation.

Why does this happen? First of all, there’s major pork involved from the Feds and from the other levels of government. That’s a huge part of it. Also, city planners, city officials, and so on consider rail transit as a monument essentially—a symbol of a world-class status city. “We’re a real city, we have rail.” This has been called infrastructure envy.

I think the “people’s romance,” as I call it, is a real important concept here. Again, it’s like a public monument, and it’s something which people who like the collectivist idea yearn for and consume. They like the idea that we the people have built this rail project, which we can all see nicely going along the landscape. When we go on it, we’re all having this shared experience in motion through space. We all built this through our agents, the government, using tax dollars. And it’s all part of a collectivist experience, and the people who especially yearn for that are very prepared to put other people’s money toward satisfying that craving—which is very unfortunate.

I think the people’s romance is actually the force behind a lot of what is done in public policy. The rest is really window dressing, and the cost falls on people who are not so interested in the people’s romance, and very often the poor, who are hurt by a lot of these bad policies, like when they can’t afford housing.

And then layered it on top of that is the normal public ignorance of how lousy rail is. People just don’t know. The journalists don’t really tell them. It’s hard for people to find out, and they don’t have much incentive to find out. What good is it to find out another way that the government is kind of making things crummy, when you can’t do anything about it?

So, let me just give you some standard transportation-economist answers about how policy should be reformed. It’s really not tricky.

Improving Transportation Policy

First, improv automobility, and then decontrol transit, allowing it to become more like the automobile in fact.

Improving automobility while on highways is simple: charge users. We now have electronic toll collection. We’re all familiar with it. Toll collection is not a problem. It’s as easy as paying your phone bill now. Paying a highway bill would be as easy as paying a monthly phone bill using electronic toll collection.

Electronic toll collection would eliminate congestion. It would increase through-put, at least when you have congestion it slows things down below, say 45 miles an hour, because you actually have higher through-put. It’s a little bit paradoxical, because you see all those cars on the road, but there’s actually fewer going through per hour, when speeds are below 45 miles an hour.

It would actually reduce pollution from cars, which is minimized at around 90 kilometers an hour. It would reduce congestion. It would give a revenue source for supply to come forward, to provide new capacity, new highway capacity.

And having that revenue source come directly from supplying it, means that you get a mechanism that would match supply to demand, which is the whole magic of markets: opportunities for profits arise where there’s demand. People are willing to voluntarily pay their dollars for your provisions. You don’t have to rely so much on central planning, because decentralized action creates these profit opportunities where they are socially needed. It makes possible—because of the revenue stream—privatization, which brings improved innovation and entrepreneurship to the whole job of highway provision.

The other big thing to do to improve highway usage and service is to ease the entitlement process to building new roads and highway facilities. It’s extremely hard now to clear a highway, to get all the environmental clearance, and all the other kinds of clearance. That whole entitlement process has become so expensive, so prolonged and so uncertain that it’s now a major obstacle to improvements in the highway system and the road system.

On transit, I would say get the Feds out. It’s a local issue. Let local people deal with it. Even if it’s going to be local government, get the Feds out. Convert many rail lines to roads or dedicated bus ways. You could have all sorts of express buses going point-to-point over dedicated bus ways that would get people to their destinations at least as well and a lot cheaper.

Privatizing and contracting out bus services. Economists have studied the experience of this. It’s lower cost. It’s generally better service, like privatization and contracting out usually is.

Taxi markets are highly monopolized by local governments. Set numbers of cabs or licenses are given out. This could be opened up to entry. There could be more competition and lower taxi rates. You could let people share their taxi ride, where several people can go, if they’re going to similar destinations. There are laws against that now, in most local taxi markets. Let them set their own prices.

For our dispersed urban structure or urban form, van services of different kinds would be a huge profit opportunity but for the fact that state governments don’t allow it.

Why don’t we have a private sector solution? Because the private sector isn’t allowed to do it. The government has made exceptions in the case of services originating at or terminating at airports, and that’s why we are all familiar with Super Shuttle and the like. But they don’t allow this, generally speaking, for kids going to football or soccer, music lessons or school or or just for commuters subscribing to a regular van service that picks up pattern of usage and all that.

On-the-spot carpooling is an interesting phenomenon that I think could be done a lot more. Many you’ve heard stories about where they have HOV3, High Occupancy Vehicle 3. You need three people in the car, and spontaneous collection points developed for people to sit the car. This was in Washington especially. And this is something which could probably be done a lot more, if it were permitted and encouraged and so on, but it’s generally not.

Now for route-based transit, our idea of curb rights could be entertained. You would have entrepreneurs taking over bus stations, curb zones, bus stops. And then, they being the ones who contract with carriers and decide when you can bring your vehicle up there, what passengers you have the right to invite into your vehicle and so on. There’s a lot of interesting virtues to that as you’llsee from our book.

So that’s just sort of a standard economist’s take on the whole transit issue. I’m really not saying anything radical at all, from the point of view of a transportation economist.

I’ve worked with a bunch of these people. I was for many years at the University of California, Irvine, which has very good transportation economists. And as I say, I can’t speak for anyone but myself, but I submit that most leading transportation economists would agree that policy should be moved significantly in the direction of tolling, deregulation, and privatization.

Economists do reach a conclusion, contrary to the popular joke. It’s kind of a well-kept secret in many respects. When you look at the economists who do applied work, who actually get their hands dirty in an applied policy issue, especially in a microeconomic topic like this.

Most of them actually do come to the conclusion that policy ought to be reformed in this direction. We’re all going to disagree about how far it should go, for example, whether highways should be entirely privately owned. I might be more radical than a lot of these people. But that’s not what I’m saying here. Everyone who actually does the math, as it were, on this, comes to the conclusion that policy ought to be reformed in this direction. And so that’s all I really want to bring to you tonight.I’m just sort of Adam Smith’s representative. Just the yeoman economist telling you that water does run downhill. Thank you. [Laughter.] [Applause.]

David Theroux

Thank you, Dan. Our next speaker is Randal O’Toole. Randal is Senior Economist at the Thoreau Institute. It’s spelled like Henry David Thoreau. He’s been the McClusky Conservation Fellow at Yale School of Forestry in Environmental Studies, visiting scholar at Utah State University, and visiting scholar at the College of Natural Resources at the University of California Berkeley where he is currently.

In addition to his book that I pointed out before, The Vanishing Automobile and Other Urban Myths, he’s the author of the book, Reforming the Forest Service, and is one of the nation’s leading experts on forest management. His article, “Is Urban Planning Creeping Socialism?”. appeared in The Independent Review about a year ago.

In 1972, Dr. O’Toole developed a market-based transportation plan for Portland, Oregon, in conjunction with some other colleagues, and his analysis of forest plans for more than half of the national forests in more than 20 states, and in every forest service region in the United States. Randal is one of the more innovative economists I know, especially dealing with complex issues such as urban development. Randal? [Applause]

Randal O’Toole Download the pdf file that goes with this presentation.

Well, Thank you, David. I hate to be introduced as innovative, especially when Thomas Rubin is sitting here in the audience, and so many of the ideas that I’ll be presenting I stole from him. Thomas and I and Dan and some other people are on an e-mail list called the Transport Policy List. And I occasionally fire off a broadside and Thomas usually sends in about three or four pages of stuff an hour, analyzing transportation policy. If anybody brings up an issue in New Orleans, or Alabama, or anywhere in the country, he says, “Well, I was involved in that, and this is what the real story is.”

But anyway, I’m going to tell you a little bit about “smart growth” and urban areas. In criticizing “smart growth,” I’m not saying that we don’t have urban problems. We’ve got all kinds of congestion problems. We’ve got air pollution problems that are diminishing, but they’re still real. We’ve got housing affordability issues, and we have open space issues, and open space is a concern of a lot people.

Now, some people say that these problems are due to too much auto-driving and too much low-density development. They call this “sprawl,” and “sprawl” is a bad word. I think of this as just suburbs, and actually 20th, 21st century living. But they call it sprawl.

Their idea is that we should spend our money on rail transit instead of highways, and that we should build high-density housing instead of low-density suburbs, and they call this “smart growth.”

Now, it’s wonderful how they’ve captured the language, because if you’re not for “smart” growth you must be for “dumb” growth. If you’re not “for” rail transit, you must be “against” transit. And so, they manage to capture the language, and one of our jobs is to capture it back.

They also want to have mixed use developments, where you have housing upstairs from cafes and shops, so that you can walk to your grocery shopping, instead of getting in your car and driving. And they paint a beautiful picture of what our urban areas are going to look like after we apply Smart Growth everywhere.

But we really have to sit down and ask some hard, empirical questions. Does Smart Growth work? Does it really reduce driving? Does it reduce air pollution? Does it cost less, and does it protect open space?

Now fortunately for everybody except people living in Portland, Oregon, we can use Portland, Oregon, as a case study, because Portland adopted the strongest Smart Growth plan of any city and urban area in the nation. It adopted the plan in 1997, but it actually began implementing the plan several years before that.

In fact, in 1979, they drew an urban growth boundary around the city, [page 1] and said, “We’re not going to have any development outside the boundary.” The only way you’re allowed to develop outside the boundary is if you own 160 acres of land and earn at least $80,000 a year farming, and then you can build one house on it. But if you don’t earn at least $80,000 a year you can’t even put a house on it. You must be a hobby farmer, so you aren’t allowed to build outside the boundary.

Now, when they drew the boundary, they initially said that as the population grew, and the vacant land inside the boundary got developed, they would expand that boundary. They would make it bigger. They weren’t interested in restricted growth, they were only interested in channeling it, making sure that you didn’t have what they call “leap frog development,” which is a community appearing 20 miles outside of your urban area.

But, as Peter Drucker says, “anything government does almost at once becomes moral.” So for a lot of people, the boundary soon became a sacred line that could not be moved at all.

And so METRO, the regional planning agency in charge planning for Portland and planning for the entire urban area, decided that they would expand the boundary just a little bit here. But to accommodate an anticipated 80 percent increase in population, they would instead rezone neighborhoods inside the boundary to higher densities. So all of these purple areas, including individual neighborhoods and corridors between those neighborhoods, are to be rezoned to essentially double to quadruple the existing density.

Now this means that we have things like neighborhoods of single family homes that have been rezoned for apartments. And so apartments start popping up in people’s backyards. Also in these neighborhoods, if your house burns down, you are not allowed to rebuild it. You’re required to build a row house, or an apartment, or some other high-density housing.

Most neighborhoods in Portland have one- or two-story buildings, except for downtown, just like many other cities. But METRO is encouraging developers to build what’s called High Density Mid-Rise, four- and five-story apartment buildings, so they can cram more people into a smaller area.

And of course, METRO is encouraging the transit-oriented developments, meaning the high-density, mixed-use developments with shops and retail offices and things like that downstairs and apartments upstairs.

METRO does allow single-family home sites in some areas, but they want them to be on very tiny lots. For example, the lots in this neighborhood have no backyard. Your back door opens on an alley, and the side yard is also very small. And METRO has decided to build a hundred miles of rail transit—we already have 30 miles—they want about a hundred miles more of rail transit in the area.

And essentially no more miles of highways. They do say they’re going to build some more highways, but they are going to exclusively serve freight areas. They don’t want the freight to be congested, but they do want to have more congestion in the urban areas where people are going to drive to work or whatever. So they’re going to build almost no new highways.

Now, what is all this going to do? In 1990, according to METRO, 92 percent of all travel in the Portland area was by automobile, and about 2.5 percent was by mass transit, and a little bit was by walking and biking, 5 percent.

METRO says, after they do all these things—increase the density by 70 percent, build 120 miles total rail transit, and no new highways—the automobile will still provide 88 percent of all travel in the Portland area. This is METRO’s projection! Transit will double from 2.5 to 5 percent, and walking and bicycling will increase from 5 to 6 percent, but the automobile will still be the dominant form of transportation!

Now, this chart [page 2] is actually a little bit deceptive, because it shows it as a percent. Remember, we’re also expecting an 80 percent increase in population, so in terms of the number of actual miles driven, you’re getting a two-thirds increase in the number of automobile trips and the number of automobile miles driven. That two-thirds increase translates to a huge increase in congestion.

Now, they are predicting, as it shows here [page 3] about 5 percent of all travel will be by mass transit. That seems to me to be pretty optimistic. Just looking at other cities around the country [page 4]. New York City has about 11 percent of all travelers by mass transit, but that’s the New York Metropolitan area, not the city. But when we go to the next highest, it’s the Boston Metropolitan area, with 5 percent. The San Francisco/Oakland Metropolitan area is only 4 percent, and so is Chicago, and Washington and Philadelphia are even less.

Now these Metropolitan areas are characterized by high-density urban cores with large numbers of jobs. Manhattan, until recently, had two-and-a-half million jobs in the urban core, and that makes it possible for rail transit to work. But in Portland we only have about 10 percent of all jobs are in the downtown area, and that’s true with most cities in this country, so you’re not going to get a high percentage of people riding transit, because they’re aren’t going to be able to get to wherever they want to go on transit.

METRO actually predicts that the number of miles driven per capita is going to increase in the next 20 years, and as a result, we’re going to have a quadrupling of the amount of time people waste sitting in traffic each day. If you sit in traffic 10 minutes a day in Portland today, 20 years from now you are going to be sitting in traffic 30 minutes a day or more. But they say, “That’s OK, because congestion is actually a good thing.”

Traffic engineers define congestion using a letter grade. “A” means no congestion and “F” means flunk, it means stop-and-go traffic. METRO has actually said that they don’t want to do anything that would reduce congestion on highways like this, and their goal is to allow congestion to increase to level F.

Historically, traffic engineers have always tried to keep congestion down to what would be level C or at worse D, meaning you’d be going at about 45 miles on a 70 mile an hour road, but you’d still be moving. You wouldn’t be stop-and-go. Their goal is stop-and-go traffic, because doing anything to increase highway capacity, as they say, would eliminate ridership on their beloved light rail lines!

Well, I was going to say that with increasing congestion comes increasing air pollution. And I do have a slide, showing that higher density areas tend to have the worst air pollution [page 5]. If you compare EPA’s ratings of air pollution, they have extremes: “severe,” “serious,” “moderate,” “minor,” and “zero.” The highest densities are the extreme areas, and the lowest densities are the zero areas, and it just goes on through the line.

The Costs of Smart Growth

Now, the Smart Growth advocates talk a lot about the costs of sprawl. They say that sprawl costs too much, it wastes money because we have to build services to all these low-density areas. But it turns out that Portland is finding that the costs of Smart Growth are a lot higher than anybody predicted.

First of all, we’ve got the light rail line, which Dan already mentioned, doesn’t carry very many people. Portland’s light rail cost more to build than an eight-lane freeway, but it carries fewer people than one-third of a lane of that freeway.

Now, I once gave these numbers to some planners and one of the planners said, “Oh, that’s too many numbers!” [Laughter.] Well, you should be able to handle simple arithmetic. This means light rail is costing 25 times more than what a highway costs to move the same number of people.

Now we also have all of these high-density developments springing up all over Portland. But guess what? They didn’t spring up by magic. We built the light rail line. We opened it up in 1986. We zoned all the land within a half-mile of it to high-density, mixed-use development. And 10 years later? Nothing. Not a single high-density, mid-rise, mix-used development appeared along the light rail line.

And so the city of Portland said, “All right, we’re going to have to subsidize it.” So they offered 10-year property tax waivers to anybody who would put in a high-density development.

In some cases, they have bought land from developers and then sold it back to the developers—the same developers—for half the price that they paid for it on the condition that the developers will put in a high-density development. In other cases, they give developers direct grants using, ironically, federal funds that are supposed to be directed at reducing congestion, to put in a high-density development that is going to increase congestion.

So they end up subsidizing Smart Growth all over the place, and it costs everybody in Portland a lot of money.

Now, we talk about affordable housing. This may sound cheap in Portland compared to here. That little house I showed you—that’s on a lot with no back yard? That starts in the 190s [$190,000]. Now, for the Bay Area, that’s cheap. But for Portland, that’s expensive. Ten years ago, that house would have been in the 90s. Now, it’s in the 190s.

What’s significant about Portland is that mean family incomes have remained constant for the last decade, but housing prices have doubled [page 6]. The result is that today—10 years ago, two out of three families could afford a median priced house. Today, only 30 percent of families can afford a median priced house. That makes Portland, after the San Francisco Bay Area, just about the least affordable housing market in the country.

By comparison, Portlanders say—well, the advocates of Smart Growth say—“The reason why Portland is unaffordable is because it’s so popular. Everybody is moving in.” Well, Portland has been growing at 2 percent a year during the 1990s, Las Vegas has been growing at 6 percent a year during the 1990s. And yet, their housing market is still very affordable. More than two out of three families in Las Vegas can afford a median priced home.

The Smart Growth advocates say we need density, we need Smart Growth to protect rural open space and rural farms. But the Portland area, the Portland Urban Growth boundary only occupies three-eighths of a percent of the entire state [page 7]. When you add in all the other urban areas—and I’m talking about all the cities and towns down to a population of nine or more—you’re still talking about only 1.2 percent of the state of Oregon. When you add in all rural developments, including agribusinesses, roads and railroads, and everything else, you’re still only talking about 2 percent of the state. Ninety-eight percent of Oregon is rural open space[page 8]. So, we’ve been running scared. We’ve been imposing all these rules to protect rural open space and it’s not really threatened.

California is not quite as well-off. Only 94.5 percent of California is rural open space [page 9]. So maybe it’s more important that you do Smart Growth here than in Oregon. So you can save that [rural open space]. Nationwide you can see that almost every state is in the 90s [page 10], except for some eastern states. Nationwide, not counting Alaska, 95 percent of the country is in rural open space. You wouldn’t know that if you just drove around on interstate freeways, which is what most people do.

But what about prime farmlands? Not just open space, but prime farmlands, the really valuable farmlands? In Oregon, the Willamette Valley was the Garden of Eden. The original Oregon Trail was people driving across—driving—taking their wagons across the country to start farms in the Willamette. And it is high productivity farmland.

The Willamette Valley is one-seventh of the state of Oregon and it holds two-thirds of its residents [page 11]. Everything from Eugene to Salem to Portland, Corvallis, Albany—that’s all part of the Willamette Valley. And the Willamette Valley Livability Project, which is a Smart Growth advocacy group, commissioned a study to find out what was going to happen to the Willamette Valley’s land in the next 50 years.

First they said, “How much of the land is urbanized today?” It turns out 94 percent of the land in the Willamette Valley is rural open space. Only 5.9 percent is urbanized [page 12].

If we keep all the current rules in place, including the rule that you can’t build a house on rural farmland unless you earn $80,000 a year farming it, then, within 50 years, they anticipate that 6.6 percent of the Willamette Valley will become urbanized [page 13].

But what if we got rid of all the rules? What if we let the free market rule? Or, as they put it, short-term economic gain as opposed to sustainability? [Laughter.] According to their study, if we did that, then 7.6 percent of the Willamette Valley will become urbanized [page 14]—only 1 percent more. All of these rules, all of the congestion, all of the air pollution, all of the unaffordable housing are direct results of trying to save 1 percent of the Willamette Valley from being developed. And incidentally, only 20 percent of the Willamette Valley is farmed. So it isn’t even necessarily a trade-off between farms and housing.

But, on the other hand, if urbanization is not a threat to rural open space, there still is a threat to urban open space. And what is that threat? It’s Smart Growth.

This is an urban farm. It’s inside the urban-growth boundary. And so, it is not a farm, even though people farm it. It has been zoned High-Density Transit-Oriented Development.

This golf course was zoned in 1980 for permanent open space. And, of course, the owners got a big tax break. But now the municipality in which the golf course is located, has to meet population targets given to it by METRO. And so to meet it, is to rezone the golf course for high-density housing and office space. And the city of Portland has even been selling some of its city parks to developers at below market prices on the condition that they put in high-density developments.

Now, the Smart Growth advocates say we need to do all of these things in order to save Portland and other cities from becoming like Los Angeles, which the Sierra Club calls the “granddaddy of sprawl.”

But it turns out, Los Angeles is the epitome of Smart Growth. It’s the highest density metropolitan area in the country. New York has about 5,000 people per square mile in the metropolitan area, which includes New Jersey and parts of Connecticut, but the Los Angeles metropolitan area is 5,800 people per square mile. Portland today is only about 3,000 but their goal is to become almost 5,000 per square mile by 2040.

We also know LA is a great big freeway and is covered with pavement, right? Well it turns out again this is a myth. LA has the fewest miles of freeway per capita of any urban area in the country.

The average US urban area has more than 100 miles of freeway per million people. Portland today has just about 100 but their goal is to get down to about 65. New York is 65. Los Angeles is only 50 miles of freeway per million people.

That’s why it’s so congested. So congested because there are too many people crammed in too small of an area, and there are not enough roads for them to drive around on. And that’s why it’s so polluted, because cars pollute more in congested traffic.

So, after promising to save Portland from becoming like Los Angeles, METRO actually wrote in one of their documents that “Los Angeles displays an investment pattern we desire to replicate in Portland.” They didn’t say it very loud. They sent newsletters to every single household in Portland, but they did not include this sentence. This was in a document that you had to buy for $10 for a 30-page report. As far as I know, I was the first one foolish enough to buy it.

So, if your goal is to turn your favorite urban area into Los Angeles, the most congested, most polluted, one of the least affordable markets in America, then by all means, follow Portland’s example and adopt Smart Growth policies.

And that, of course, is what is happening here. The Metropolitan Transportation Commission is now considering, and will soon adopt, the 2001 Regional Transportation Plan. It dedicates 80 percent of all transportation funds, and 80 percent of all capital transportation funds, to 4 percent of all travel, in other words, to transit. And it includes all kinds of subsidies and incentives for Smart Growth development.

They call it Transportation for Livable Communities, meaning we’ll pack a whole bunch of people in here and then maybe we’ll ride BART. BART, incidentally, only carries about 2 percent of all travel in the Bay Area. And that doesn’t count San Jose, of course. Just San Francisco/Oakland.

Daniel Klein

BART towns.

Randal O’Toole

No, just the BART areas.

So, what is the solution to these problems? Dan has already talked about some of them, using congestion pricing, value pricing tolls for congestion.

One thing I wanted to mention that he didn’t mention is that if you’ve got one of these little passes, which is a little transponder you put in your window, you can drive up to certain McDonald’s and order a meal, and pay for it with that. You don’t have to fumble for your change or anything at the drive-up window.

Pretty soon, you’ll be able to do all kinds of things with it. Like you hear about in Finland, you can take your cell phone and buy a Pepsi-Cola out of a vending machine. Well, pretty soon you’ll be able to use your Fast Pass to do that or use your cell phone to pay for your tolls.

Privatizing Neighborhoods

Now, I want to talk in a little more detail about another idea, which is privatizing the neighborhood. Instead of having zoning done by cities or counties or regional governments, as we do in Portland, the planning and zoning should be done by individual neighborhoods and neighborhood associations.

Now, Robert Nelson, who’s a public policy professor at the University of Maryland, has written an article in the George Mason University Law Review. I believe it was late ’99 and is reprinted in The Independent Institute book, The Voluntary City.

Daniel Klein

It’s in the book.

Randal O’Toole

Oh, it’s in your book, OK, that’s called “Privatizing the Neighborhood,” and he’s proposed that we take cities that have zoning and allow neighborhoods to opt out of the zoning. And they can form their own neighborhood associations and then write their own restrictive covenants. And this system, he says, and I agree, will be more flexible and more responsive to change in the long run, but it will also protect the neighborhoods as far as they want to be protected from changes they don’t want.

I would also propose that we take open space funds and, instead of giving them to giant regional park districts, give the open space funds to the neighborhood associations, and then they can decide whether they want to use the funds to create big open spaces somewhere, or to create playgrounds for their kids, or what proportion of funds should go for which.

Now there’s a lot of information that I’ve just thrown at you. Of course, we’ll have a question and answer period, but if you don’t get a chance to ask a question, my e-mail address is rot at, and my Web site is So feel free to e-mail me or look up the Web site. Thank you very much. [Applause.]

David Theroux

We have time for questions, and if you wait for Carl, and when you use the microphone hold it horizontally. So, the gentleman in red.

Audience Member #1

Why is there no development next to the light rail in Portland? You said nobody built apartments next to them. Why?

Randal O’Toole

Well the simple answer is, there isn’t that big of a market for people who want to live in high-density housing next to the light rail. There isn’t much of a market for it. I’m not saying there’s no market for it, but the market was already saturated by existing high-density housing in the core area. We didn’t need to build a lot more, because people didn’t want to live there, even though housing prices were increasing during most of that time. Single family housing prices.

David Theroux

Right there.

Audience Member #2

Let me see. Sort of two related questions. Reason had a generally sympathetic interview with Jane Jacobs, and the first city she mentioned, as an example of a good urban area, was Portland. This was very surprising after reading your articles in Reason. A related question, what’s the political climate in Portland after these changes, and why is her impression so different than yours?

Randal O’Toole

I don’t know that Jane Jacobs has ever been to Portland. One of the best reviews of Jane Jacobs book, The Death and Life of Great American Cities, was by a sociologist named Herbert Gans, who wrote a book called, The Levittowners, and also, what was his other book, The West End, it was about the West End in Boston.

Anyway, he said that a lot of people come into cities as tourists. And they see them through tourist eyes, and they try to say, “Hey this is a beautiful place, I’d love to live here, because it’s so much fun, it’s so entertaining.”

But residents don’t have tourist eyes. They want serviceability, not entertainment. And that means they want to be able to get around the urban area in their automobile. They don’t want to be confined to a light rail or whatever. So you can go into downtown Portland and ride the light rail to the edge of downtown and say, “Wow, this is cute.” But you find out that hardly anybody in Portland uses the light rail because it doesn’t serve their needs.

So, I would say that Jane Jacobs is a hard-core central city person. While she criticizes planners, she also criticizes the suburbs, and I think she’s off target there.

What do Portlanders think of this? Their attitudes are pretty mixed. The polls show that if you ask them tomorrow: would they support the current urban growth boundary? or a slight expansion? or a big expansion? The majority would say no expansion. And if you ask them today: where do you want to live, in the inner city? in the low-density suburbs? or the very low-density rural areas? The exact same majority wants to live in the rural areas, and a majority of the remainder wants to live in the suburbs.

So it’s like light rail. We’re for light rail so that somebody else will ride it and make the highways less congested. We’re for high-density development so that somebody else can live there, and I can live out in the rural areas with the birds and the bees.

Audience Member #3

Thank you gentleman, I think this is better addressed to Mr. Klein. There is a popular myth all over the country, especially in the Bay Area, that General Motors shut down public transit. They just did horrible things, and that public transit would be all over this country if it weren’t for the evil capitalist General Motors running the bus companies out of business in LA and buying them out, etc. Can you address the historical facts around that, please?

Daniel Klein

There’s an article that answers this question. It’s by a Portland State University scholar, Sy Adler, and it’s called, “The Transformation of the Pacific Electric Railway: Bradford Snell, Roger Rabbit, and the Politics of Transportation in Los Angeles.” (Urban Affairs Quarterly, Volume 27, Number 1, 1991).

And Adler goes through and just shows that, no, it made sense to close down those things. And there was politics and stuff, but he’s gone through it, and it’s basically an urban legend. Randy, can you add to this?

Randal O’Toole

It’s the same thing. Scott Bottles, a UC scholar has written a book on the same subject (Los Angeles and the Automobile: The Making of a Modern City). Basically the truth is General Motors and some other companies bought interests in transit companies around the country, because the transit companies were trashing their rail lines, their streetcar lines, and buying buses. And all General Motors wanted to do was to make sure that when they bought buses, they bought General Motors buses instead of somebody else’s buses. And they got taken to court for an antitrust violation, and they were convicted and fined $5,000. So they got rid of the transit companies.

But the ironic thing is that “Roger Rabbit” is about the Pacific Electric in California. General Motors did not buy Pacific Electric. The Pacific Electric lines—the streetcar lines were torn out and replaced with buses by the Los Angeles Metropolitan Transit Authority after it purchased Pacific Electric. So it was the government that got rid of the “Roger Rabbit” lines.

Audience Member #4

This question is for Mr. O’Toole. I noticed in a couple of slides, you had a map of the state up there, and I think it’s important to note that the state of Oregon—the Urban Growth Foundry policy that’s implemented by METRO Portland—is really implemented vis-a-vis a state statute and mandate to do so.

What have you observed about Vancouver, Washington, just to the north across the river where you don’t have same state mandate, and therefore, I’m assuming you’d have some interesting side effects or unintended consequences?

Randal O’Toole

One of the quickest unintended consequences is that, although the Portland area grew at 2 percent a year over the last decade, the Vancouver area grew about 12 percent or 13 percent a year. It tripled in size, because people who were working in Portland found that they wanted to live in a place that wasn’t so regulated, and incidentally, not so heavily taxed, so they moved to Vancouver and then they commute to Portland.

The other interesting thing is that every city in Oregon has an urban growth boundary, but the big cities are tracked by the National Association of Homebuilders: Salem, Eugene, and Medford, and they are also in the Top 20 least affordable cities—urban areas in the country—least affordable housing markets.

And it’s interesting. You look at the least affordable Top 20, and they are almost all cities in California, Oregon, and Texas. In Texas, the cities are mostly border cities, and I think the reason why they’re unaffordable is because there’s a lot of immigrants who are not yet earning American dollars, and yet they’re living there, and so they can’t afford to buy a house.

But in California we have unaffordable cities because we have anti-Smart Growth. We have government policies aimed at making densities less than the market density. And in Portland, we have unaffordable housing because we have government policies aimed at making density higher than the market density. If we would let the market work, in both cases, we could have more affordable housing.

Audience Member #5

This is the first time for me to come to one of these meetings. And I just decided to go back to school after four years, and in this meeting, I’ve decided there are a lot of things I don’t know.

And one of the things that I find very curious is that I see the statistics for mass rail transit, but I don’t see them set up to compare to statistics for highway costs. I hear a lot of people in this country, I just spent 12 years in Japan, talking about how many railroads pay for themselves. I can’t understand how many highways pay for themselves in this country.

And if we take the cost of your car, the cost of your gasoline, the cost of your insurance, the time that you spend, not in Portland necessarily, or in Las Vegas necessarily, but on 880 out here commuting between Berkeley and San Jose, how much is it worth to take your life in your hands everyday on an hour and a half long commute, paying high gasoline prices, high car prices and so forth—and taxes?

Randal O’Toole

That’s a very nice speech. And it encapsulates a lot—

Audience Member #5

It’s not a speech, it’s a question—

Randal O’Toole

Oh, it’s a very nice question, and it encapsulates a lot of the myths about automobile.

Number one—safety. Urban freeways are just about the safest form of urban transportation there is. The fatality rate due to light rail transit is three times greater than the fatality rate due to urban freeways per billion passenger miles.

Number two—cost. The cost of an urban freeway is roughly $5 million to $10 million per lane mile, and if you have to do a lot of bridge work it gets to be higher sometimes, and you’ve got some really exceptionally expensive things like the Big Dig, the Central Artery Project in Boston, which is a bunch of tunneling. But generally the average cost is about $5 to $10 million per lane mile.

Meanwhile the average cost of light rail about $50 million a mile. The average cost of heavy rail, like BART, is a $100 million a mile. So you have to ask, is light rail carrying five times as many people as a freeway lane? Is BART carrying 10 times? No, they’re generally carrying less than a third as many.

Audience Member #5

But that doesn’t include the price of cars, the operating costs—

Randal O’Toole

All right, let’s talk about those costs. Today Americans drive four times as many miles they did in 1960. But as a share of our income, all the costs associated with the automobile are less today than they were in 1960. Today we spend about 15 percent of our income on automobiles—all of the costs: gasoline, oil, repair, insurance, everything. In 1960 it was closer to 20 percent. So the cost has been declining, even though we drive four times as much.

And then there’s the idea that we waste all of our time on the freeway in congestion. The average amount of time people spend commuting is about 23 or 24 minutes each way. That’s by automobile. For mass transit, it’s much, much higher. So those people who choose or are forced to use mass transit tend to spend a lot more time commuting. And maybe they can get a little bit of reading done on it, but it’s nowhere near as comfortable or as pleasant a journey as it is by automobile. There was—

Daniel Klein

Can I just follow up on it?

Randal O’Toole


Daniel Klein

Page 12 of my handout does make the kind of comparison you’re asking for, where they compute the annualized cost of new starts in rail projects, and I pulled this right off of Wendell Cox’s Web site. You know, he’s saying you can lease cars at cheaper rates for these new passengers.

Now when you phrased your question, you said that they don’t pay for themselves.

Randal O’Toole

Oh, that was the other thing, right.

Daniel Klein

Well, the government runs a government highway, and they don’t charge for it. Sure it doesn’t raise revenue. But that is in the nature of the way they’ve set up the service.

Audience Member #5

But it doesn’t apply equally to trains. And the same standards are not held to automobiles, and cars, and that form of transportation as we attempt to hold trains and mass transit to.

Daniel Klein

What do you mean standards?

Audience Member #5

We expect trains and train lines to be privatized and to pay for themselves, and to get out from government subsidies. And we don’t hold highways and roads and bridges to the same standard.

Randal O’Toole

Now it sounds like you’re with us. We should privatize the highways.

David Theroux

We’re doing a book on that whole issue.

Randal O’Toole

Mark Delucci is with the University of California, Berkeley, and he’s looked at the cost of highways and the cost of automobiles compared to the cost of mass transit. And what he’s concluded is that people who advocate mass transit better not raise this issue, because the subsidies to mass transit average about 45 cents a passenger mile. The subsidies to highways average about a tenth of a penny per passenger mile. Even when you include all the social costs of highways: air pollution, water pollution, noise pollution, everything else, he estimates that they only average about 5 cents a passenger mile. That’s about 10 percent of the subsidy to mass transit, and then mass transit has social costs, too. So overall, the automobile wins out.

And I want to point out that I’m saying this, not because I love to drive. I don’t. I bicycled here. And by the way, you have your office in a rather bicycle unfriendly neighborhood, I must say. [Laughter.]

I ride BART and the bicycle to work everyday and it’s another curious thing; I have ways of going. One way, I bicycle 15 miles and BART 11, and the other way I bicycle 7 miles and BART 26. And it turns out, I bicycle faster than BART. [Laughter.] I get there quicker if I bicycle 15 and BART 11. I’ve never in my life commuted to work by automobiles, and I love trains. I just don’t love paying for somebody else’s hobby.

David Theroux

Let’s get somebody else. This gentleman right here.

Audience Member #6

I was always under the impression that Europe was already congested when the transportation systems, automobile and trains were brought into the economy. And therefore, they developed mass transit and trains, and very efficient trains for greater reason, because they already had the population congestion, whereas we did not have. Now we are entering into that in our urban areas, and it would seem that what they have could be emulated, but your figures seem to go contrary to that. How do you compare Europe?

Randal O’Toole

Well, except for Manhattan, we don’t have any part of this country, even San Francisco, that is as dense as some of the urban areas in Europe. So that the central core of Paris, London, Amsterdam, and these other urban areas, are much higher densities than any urban areas in the United States.

But look at what Europe has done. After World War II, most Western European nations made a very conscious decision to do what we today call Smart Growth. They promoted high-density housing. They discouraged low-density housing. They subsidized mass transit. They heavily taxed automobiles and petrol. And, as a result, they implemented Smart Growth essentially 55 years ago.

And what do we see today? Today you look at European cities, people are moving out of the city center. They’re moving into the suburbs. They’re buying single family homes. Automobile ownership and automobile driving has increased three times as fast as in the United States. Almost every city center, Paris, London, whatever, is declining in population. The urban areas are declining in density. Mass transit in almost every one, except for Stockholm, is stagnant or declining in terms of actual use, and in terms of market share, it’s declining rapidly because automobile use is increasing so fast.

So Smart Growth doesn’t work in Europe. Why would we expect it to work here?

David Theroux

There’re some people in the back.

Audience Member #7

This is my first time here as well. And coincidentally, I’m also going to take the devil’s advocate position a little bit.

Daniel Klein, it seemed to me that when you were talking about people’s reasons for wanting mass transit, to me it felt like there was something missing there. I’m a libertarian, and I believe in free enterprise. I don’t want government control. But aesthetically, I definitely prefer the idea of mass transit in high density. And I know I’m not the only libertarian that feels this way.

There’s a Web site called that talks about city living and touts mass transit and density and this kind of thing. There is something there, and it’s not quite clear to me exactly what it is.

But one thing that enters into this equation is that we’re looking at a system where automobile traffic is largely free enterprise and mass transit is largely government controlled and regulated. So in a sense, it should be no surprise that the statistics we have show that mass transit is much more expensive, inefficient, and everything else compared to the automobile.

If it was the other way around, if we had competing mass transit companies, and the government owned all the cars and you had to go to specific places to pick up your car, and lease it from the state, and this kind of thing, imagine what it would be like. I think that part of what we’re looking at is a result of the economic system we’ve set up and not inherent inefficiencies or problems with mass transit. Also, regarding the density—

David Theroux

Do you have a question?

Audience Member #7

No, I really have more of a speech actually. If you want me to, I’ll assume that one of your speakers can find a question in there somewhere. Yes, I guess I’d like to hear you address a little bit the idea of why couldn’t we have more density like Amsterdam, London, Manhattan, and those countries, so that mass transit would be more effective, and why couldn’t we privatize mass transit and have more buses and trains run by competing companies instead of just going to a suburban automobile kind of model?

Daniel Klein

I want to take a piece of that. I asked Randal to get a picture of the traffic jam on the highway. I don’t know whether it’s going to warm up in time. But you saw pictures of the traffic congestion on the highway, which you call the transportation private sector, free enterprise sector.

When you see that traffic jam on the highway, you should think of a bakery shop in Russia with a line going around the block. You are looking not at a car problem, you are looking at a socialist highway problem.

We do not have anything like a free enterprise automobile system at all. Just because the automobiles are privately owned [doesn’t make the system “free enterprise,” because], the infrastructure, the important part of the whole system, is a socialist enterprise. And what you see here is what happens when they socialize groceries or housing or anything else. The exact same thing. The exact same cause. The exact same effects.

Sure, let’s get rid of that. If we privatize highways and have markets for highways, they’ll be more aesthetic.

Now as the demand for aesthetic urban environments, Randy do you want to address that one?

Randal O’Toole

Well, I’m reminded of an article that was posted on the Web by, I’m embarrassed to say, a University of California, Berkeley, economics professor. [Laughter.] And he said that when he was first hired at Berkeley, at the income he was given, he had a choice between buying two-bedroom house on a small lot in Berkeley, or a four-bedroom house on a five-acre lot in Lafayette. And so naturally he bought the four-bedroom house in Lafayette.

And then when he sometimes goes for a walk on the beautiful open spaces behind his house, he goes up the hill, and he looks down at Highway 24, and sees all the traffic jams of people driving into Berkeley. And he says, “Why couldn’t we just have higher densities in Berkeley and San Francisco so that people wouldn’t have to be jamming up the highway that I have to drive in to get to work everyday?” [Laughter.]

Now I think there’re a lot of people who think that high density is fine. I don’t have any objection to high density as long as it’s what people want. And if people want to live there, and a developer builds it for them, that’s fine. If people want to live there, the developer will build it for them.

What we have in Portland is mandatory, legislated high density. These mid-rise developments that are so heavily subsidized. They have an 11 percent or 12 percent vacancy rate, which is unheard of in the Portland area. Most areas have 2 percent and 3 percent vacancy rates. People don’t want to live in those kinds of densities. Some people do. But the market for them is already saturated. There’s already plenty for them available.

David Theroux

In back.

Audience Member #8

I thought I heard you say when you were talking about the relative unaffordability of California housing, that there were zoning restrictions that prevented higher density? Did I hear that correctly? And if so, could you speak to that?

Randal O’Toole

Yes, there are, in many communities. Some communities have passed ballot measures to say if you want to build a high-density development, you can only do it after getting a vote of the people supporting it. It is not enough to get your planning commission to approve it. Any density is restricted.

The regional parks that we see all over the place are essentially a weapon against density. If we put in a lot of big parks, then you won’t be able to put in housing there, so that the highways around the parks will be less congested.

There is a movement for density, and the Metropolitan Transportation Commission is promoting Smart Growth, and so on and so forth. But mostly the density that we see in this area is a result of high land cost as a result of all the low-density restrictions and the purchases of open space and so on and so forth.

Daniel Klein

I want to add something about understanding the forces behind restrictions on the housing supply, and that is that there is a very significant element of what, Aaron Adrian, the author of this working paper on Silicon Valley, calls the “Goldfinger” tactic.

Now if you remember the James Bond movie, “Goldfinger,” the villain Goldfinger is going to enrich himself not by stealing anything, but by destroying a huge stock of the gold supply. Namely, blowing up a nuclear bomb in Fort Knox, which would shift back the supply curve of gold, drive up the price of gold, which he happened to have a lot of, and enrich himself.

And that’s a very important phenomenon in housing market restrictions. Homeowners do not want to see competitors. They do not want to see new housing supply come on the market, because that’s competitors against their major asset, their own home. And so, the homeowners in town, the ones in town with the power to control policy to a great extent, or to influence it, are precisely—they’re Goldfingers essentially. And they’re destroying property rights of potential competitors. And that’s what a lot of housing restrictions are really about.

Audience Member #9

NIMBYs, they’re called NIMBY.

Daniel Klein

Yeah, it’s NIMBY. But this is more like, “I don’t want competitors who are also offering housing to my potential buyer.”

Randal O’Toole

There have been two good books on this very subject—on the effects of the housing market in the Bay Area; of these kind of restrictions. One was, The Environmental Protection Hustle. And the other was Suburban Squeeze. It’s a more recent book.

One of the books points out that it is so easy to object to and stop a new housing development in the Bay Area that a Boy Scout once stopped a condominium proposal in order to earn a merit badge. [Laughter.]

Audience Member #10

This is a question for both of you. I was a little bit late to this meeting, in part, because I encountered what my colleague, Joe Fuhrig, refers to as a pricing problem on the freeways. And I think you’ve both done a wonderful job of exploding some of the myths about urban planning. What I’d like to hear more about is whether you feel that the mispricing of the roads has caused any distortions.

I get the impression from both of your presentations that, outside of traffic congestion, if the roads were properly priced, things wouldn’t be very much different. I have an intuition that’s maybe false—that the mispricing of roads has also affected choices about where people live, how far away they are from their jobs—and so I just wanted to hear your thoughts on that.

David Theroux

And where the roads are.

Randal O’Toole

I think that if we corrected the pricing, things would be very different, but I can’t predict exactly how different they would be. I would be willing to let the chips fall where they may.

However, I do want to say that the advocates of Smart Growth often talk about the subsidies to sprawl, and I’ve looked as hard as I can to try to find all of those subsidies, and there are some there. And then I’ve taken a look to see what subsidies there are to high-density inner cities, and, as near as I can tell, cities, states, and the federal government, are subsidizing high-density inner cities at the rate of about 10 dollars for every dollar that they give to low-density sprawl. So if we took away all the subsidies and put things on a user-fee basis, my guess is that it would not curb low-density development. It might actually accelerate it.

Daniel Klein

One little point is that if the roads were priced, it’s true that people would now be paying road charges, but they would be spending less time in traffic jams, so that might induce them to move even further out.

Audience Member #11

Isn’t one of the possible distinctions—as I recall Oregon doesn’t have no property tax?

Randal O’Toole

You recall wrong. No sales tax.

Audience Member #11

No sales tax.

Randal O’Toole


Audience Member #11

What are the relative rates on property taxes between Oregon and California?

Randal O’Toole

I don’t know. I know that Oregon’s property taxes are about twice as high as in Washington, which has no income tax. Even though we have had our proposition—what was it, Proposition 13, down here? We had ours, it was called “5,” that put a limit on property taxes. But they’re still pretty high.

Audience Member #11

The reason I was asking, it was related to the unit cost versus revenue phenomena, where around here, they can push up the cost of all the housing by putting restrictions on it, by whatever means, and the higher pricing increases total revenue to local government. And so, what I was wondering was, if the inverse relationship between acreage minimums here, for example, and the high-density stuff you were seeing in the Portland area might be just two different revenue strategies in some respects from—exercised by local government?

Randal O’Toole

I think that does play into it. But I also think that there are a lot of people out there who are supporting Smart Growth, and they each have their own agenda. Some people support Smart Growth because they think automobiles are evil, so they want to create more congestion to punish you for driving. Other people support Smart Growth because they want to save the countryside, and so they want to pack you into cities so that you can’t go out and trample on the countryside that they want to save for themselves.

Other people want Smart Growth because they are downtown property owners, and they figure those suburban shopping malls have been stealing all their business, and if we can just make it as congested in the suburbs as it is in downtown, then people would stop going to the suburbs, and they’ll start shopping and moving their offices downtown again. There’re all kinds of reasons for supporting Smart Growth. None of them are very noble.

David Theroux

How about the lady right here.

Audience Member #12

You mentioned making buses act more like cars. Well, I sat all morning at an MTC meeting when they were trying to implement their twenty-five year plan, and I heard at least three people say that mass transit does not work for them, and couldn’t they do something more about these ideas about having neighborhood rental cars. And I thought, well, in our town of Alameda, we don’t have BART, we don’t have rail, and they’re spending all of this money taking BART everywhere. And expensive buses. And people don’t ride buses anyway. They come to Alameda kind of empty. I think Seattle likes buses better than the Bay Area does.

But I think if they went where we wanted them to go. If they were more like environmentally friendly. If they were smaller. If they ran more often, rather than six at a time. Coming through the crowded parts of Berkeley and Oakland, bringing us about five buses at a time, and then nothing for an hour. Anyway, if we had things that ran around. Forty percent of our travel in Alameda is within the city itself. It doesn’t even leave the city. So I wonder how you promote better bus transportation and make it work for us? Because there is a need.

Daniel Klein

Absolutely. You can think of vans as small buses. You can think of them running along routes or running under subscription according to what their customers do on a regular basis.

Another very important point is that a lot of cars are going into work having three empty seats. So, one of the ideas in Curb Rights is that these curb-right entrepreneurs could allow an ordinary motorist to put up a sign that says, “I’m a jitney this afternoon.” I’m on my way to work. And he’s got his safety inspection, he’s got his certificate of who he is, that he’s registered with the system. And you can get into his car, and there could be signage and whatnot, or just understanding that certain—that’s one thing that they would do at these curb zones and bus stops is give you information about where these things are going, what these different signs mean.

There’s a tremendous amount of capacity unused in cars, and that’s why I say, in a sense, on-the-spot carpooling, jitneys, vans, buses—this is all a continuum. And we could have much more entrepreneurial transit, but there are just laws that say no. Taxis, too, are part of that. So yes, it could be much more that way. And it’s just not allowed.

Randal O’Toole

I also want to add that the federal government has created some perverse incentives for transit agencies. The federal government will fund capital costs, but they’re very reluctant to fund operating costs. So if you’re a transit agencyand you have a choice between buying one 40- or 60-passenger bus, or 10 vans, which you can buy for the same price, well, if you buy 10 vans, that means you have to have 10 people—10 drivers, and that increases your operating costs. So it’s just cheaper to buy the 40-passenger bus. So you end up with all these big buses running around not very frequently and pretty empty, when you could do the same job a lot more frequently, and provide a lot more service, with the 10 or 20 passenger vans.

So if the federal government just gets out of the transit business altogether, we’ll get rid of this perverse incentive, and we might have some more creative activities on the part of transit agencies.

Rail transit is the same thing. Transit agencies discovered, hey, we can hold up the federal government for a billion dollars and build a big rail line instead of just $200,000 to buy a bus. And we provide exactly the same service as we could get with 10 or 20 buses, but we got a chance to get all this money out of the federal government.

Audience Member #13

Yes, Randal O’Toole. When you were looking at the subsidies to city center versus suburbs, did you take into account the property tax, which falls on two types of property, the buildings, and improvements, and on the land. And when it falls on the improvements, it’s actually a penalty on building taller, because you’re punishing vertical transit, you’re punishing higher buildings, because the more you build, the more you’re taxed. So that’s a disincentive to higher density.

Randal O’Toole

I don’t think that’s a subsidy.

Audience Member #13

No, it’s a disincentive. The property tax system punishes you for building higher. So, in other words, it indirectly subsidizes the fringes by penalizing the center.

Randal O’Toole

Right. So we’re agreed that it’s not a subsidy. You think it’s a disincentive.

Audience Member #13


Randal O’Toole

Well, it turns out that when you tax residential development—low-density residential—most of the taxes are going for schools. And low-density residential development can pay for itself. In other words, the taxes coming from low-density residential development pays for the schools, but high-density residential development, the tax per dwelling unit, isn’t as great. You’ve got a 20-unit apartment. The tax per dwelling unit isn’t as great as it is for a big housing development.

So the high-density development does not pay for itself. So you’re much more likely to be talking about subsidies to high-density development through property taxes than through low-density development. So if you’re concerned about disincentives, I’d say governments are very right to have a disincentive to have high-density development, because it imposes more costs on them than they can afford to pay.

Audience Member #13

Well, another thing is utilities. If you charge the same for water on the fringe than in the center, it costs more to pipe water to the edge than in the center where the main source of the water is, doesn’t it? And yet, so in that way—

Randal O’Toole

Actually, the additional cost is so negligible, it’s not going to make a difference. What turns out really costs you, is if you take a low-density area and rezone it for high density. You will usually have to go in and tear up all the streets and put in bigger sewer mains, put in bigger water mains, and put in more infrastructure. Tear down some houses to put in schools. And that costs you a lot more per unit than simply developing new low-density on the urban fringe.

So we hear about the cost of sprawl, but most of the studies on the cost of sprawl have been hypothetical. When you actually sit down and look at it, the numbers show that the actual cost of urban services are greater in higher density areas than low density areas. And there was a study done by Dr. Helen Ladd at Duke University that showed this to be true.

Audience Member #14

Well, I didn’t want to be the only one here who didn’t get a question in. [Laughter.] In your answers about highways paying for themselves, it’s my impression that the gas tax pays for a substantial portion of, not only the highway construction, but also heavily subsidizes transit. So in terms of the answer to the issue of what is subsidized and what isn’t, my thought was the gas tax covers a lot of that cost, and some of that gas tax money never even makes it to highway funding, it winds up in the general fund. That’s just a background.

Now my question is, I think it’s fairly obvious, and there’s consensus among experts, that there’s a long-run real increase in energy cost that we’re facing. And what is the impact going to be on the automobile city of having substantial increases in energy costs, say 50 years from now?

Randal O’Toole

The simple answer is that the impact is going to be that we’re going to buy more fuel-efficient cars. We had the energy crunches in the 1970s. By 1990 people were driving 50 percent more than they were in the late 1970s and using less fuel total, because we were driving more fuel-efficient cars.

Now we have these hybrid electric vehicles coming out. [The Toyota Prius] Toyota sold 19,000 of last year and they promised they were going to sell 300,000 of in two years. The Honda Insight—they get twice the fuel economy of an ordinary gasoline car and they produce less than 10 percent of the pollution of an ordinary 2001 gasoline car, less than 1 percent of the pollution of a pre-catalytic converter gasoline car.

So the problems with air pollution are going to go away. The problems with fuel—running out of it, fuel costs—are going to go away. What we’re going to have though is the problem of how are we going to pay for those highways out of gas taxes when people are driving more and more fuel-efficient cars? [Laughter.] We’re going to have to turn to the kind of toll systems that Dan has been talking about.

David Theroux

Dan, do you want to comment on the gasoline tax issue and how that relates to—

Daniel Klein

No not particularly. You’re right. I mean, that doesn’t really change what I said about it not being a free enterprise system. It’s not taxing usage of the road. It’s not taxed by time—you’re not paying by time, by where you’re driving, when you’re driving. So it’s not rationing the way prices need to ration scarcity.

Randal O’Toole

It pays for itself the same way as if everybody in this room just paid $1,000 a week to Safeway, and then they could just go in the store and take anything they wanted. [Laughter.] And we’d all take the filet mignon and everybody would leave the hamburger behind. And that’s what happens with our freeways.

Audience Member #15

What happens to public good? Aren’t the highways and roads a public good?

Randal O’Toole

It’s only a public good because we’re not pricing it correctly. It’s not really a public good.

Daniel Klein

You mean a public good in the strict economic sense of the term? No. The answer is simply no. It’s very low cost to exclude non-payers. It’s as easy as excluding non-payers at movie theaters. Is a movie theater a public good?

David Theroux

Is food? Is housing?

Daniel Klein

Well a movie theater at least has a joint kind of experience. But you can exclude non-payers. You can charge for it. You can get supply to respond to demand, because demanders have to pay to get it.

Audience Member #15

Are you talking about toll roads like they have out East?

Daniel Klein

Yeah, you could have—

Randal O’Toole

But not like they have in the East. There’d be electronic tolling, so you wouldn’t have to stop at a toll booth, and they’d be value pricing, so you’d pay more during peak periods than you would pay during off periods.

Daniel Klein

Let’s put it this way. If the government ran movie theaters and charged nothing would you call those public goods?

David Theroux

One more question. There’s a gentleman right back here.

Audience Member #16

I was just going to ask this question. You talked a lot of innovative concepts, but I keep hearing in the background obstacles to implementing any of these things. And I’m just wondering if you have any kind of brilliant ideas about the internal dynamics of bureaucracies or government that impede, for instance, the case of the jitney, which is a great concept, it’s obvious to just about anybody. But there are obviously some forces in place that prevent that from happening. And I’m just wondering if you could go into a little detail about how you would convince those that would resist it to get on board.

Daniel Klein

Just wish David Theroux all the health and prosperity of The Independent Institute [Laughter.] And that many are going to imitate his important social function.

David Theroux

Thank you Dan. I want to thank our two speakers. As you can see, the topic is quite interesting and quite relevant. So if everyone would join with me in thanking them. Again for those of you who have not gotten Curb Rights and The Vanishing Automobile, there are copies upstairs. They’d be happy to autograph copies. And we look forward to seeing you at our next event. Thanks for coming.


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