Editorial Counterpoint: Housing Report Not Credible

Why should the Met Council have anything to do with determining future housing supplies?
July 5, 2014 • Commentary
This article appeared in Star Tribune on July 5, 2014.

To justify its plans to interfere with local housing markets, the Metropolitan Council commissioned a report on the future of Twin Cities housing that predicts growing demand for multifamily housing and a surplus of single‐​family homes on large lots. Yet this report, discussed in a June 27 Star Tribune editorial (“Major changes ahead in Twin Cities housing”), is based on flimsy logic and a lack of any understanding of the law of supply and demand.

The latest urban planning fad is to increase urban densities by locating nearly all new housing and commercial development in transit corridors. Regional planning agencies in Portland, San Francisco and other urban areas have completed such plans, and the Met Council’s “Thrive MSP 2040” plan follows the same fad.

To support this policy, the council turned to Arthur C. Nelson, a University of Utah professor of urban planning who is the “go‐​to guy” for planning agencies that want denser development. In 2006, Nelson predicted that America would soon have 22 million “surplus” single‐​family homes on large lots because most people would prefer apartments or small lots.

Nelson based this prediction on his interpretations of surveys that asked vague questions like, “Would you like to live in a neighborhood where you could walk to a grocery store?” As University of North Carolina urban planning Prof. Emil Malizia pointed out, Nelson’s surveys were “not terribly reliable” because they weren’t random and could easily be influenced by how questions were asked, and because people often behave differently from how they answer survey questions.

Based on these unreliable surveys, Nelson claims he can predict future housing demand. For example, he says the demand for Twin Cities townhouses, apartments and condominiums will increase from 426,000 today to 619,000 by 2040.

As Economics 101 teaches, “demand” is not a single number, but a relationship between prices and quantities. At higher prices, we want less; at lower prices, we want more. Nelson has apparently never taken Economics 101, as he repeatedly uses the term “demand” but never mentions prices.

Given a choice between a “walkable” neighborhood and one that is not walkable, you might choose walkable. But given a choice between a 1,400-square-foot home on a tiny lot in a congested part of town for $375,000 and a 2,400-square-foot home on a large lot in a quiet suburb for $295,000, most people would prefer the larger home.

Factors such as congestion, noise, privacy and cost never enter into Nelson’s calculations. Yet the Thrive plan’s compact, walkable neighborhoods will offer people more congestion and noise and less privacy at a higher cost per square foot than single‐​family homes on large suburban lots.

Nelson’s report has additional flaws. He says “sweeping demographic changes” — including an aging population, increasing numbers of ethnic minorities and declining numbers of households with children — are changing housing preferences. Yet, as shown by a recent Fannie Mae study, his assumption that large numbers of these people are moving into apartments, townhouses or houses on small lots is not coming true.

In addition, five of the Nelson report’s 10 figures and five of its 13 tables give as their sole source: “Arthur C. Nelson.” The Met Council is basing the future of the Twin Cities region on someone who doesn’t understand the law of supply and demand or the need to document his assertions.

The real question is: Why should the Met Council have anything to do with determining future housing supplies?

As Malizia pointed out in his response to Nelson, if people’s preferences change and housing is left to the market, the market will respond to those changes.

Not satisfied with that, the Met Council wants to dictate future housing choices by restricting low‐​density housing and subsidizing high‐​density housing near rail stations.

These policies will make housing less affordable, which (perhaps deliberately) will make the council’s prediction of an increasing desire for multifamily housing a self‐​fulfilling prophecy.

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