Public Comment

When Smart Growth is Actually Dumb Growth, It's Time to Re-Program

James Shinn
Friday August 21, 2015 - 04:07:00 PM

Sometimes, so-called “Smart Growth” construction of residential, high-rise buildings is not smart at all. In fact, it actually can turn out to be “Dumb Growth”—and in some urban locales, such as much of the Bay Area, very dumb growth indeed. It is a complicated story:

The simple explanation for this comes out of an Economics 101 course—it is a phenomenon called “inelasticity of demand as it relates to price”. In an extremely land-scarce, highly desirable(climatologically and topographically) urban locale such as San Francisco, or even Berkeley, all we do when we build skyscrapers is, in effect, to provide more surface area for habitation in a given square yard of land.

Normally, in land-abundant, modestly desirable urban locales, this increase of supply, in the face of a constant LEVEL of demand for the commodity, will result in declining ability of the sellers of the commodity(in this case real estate) to maintain prior price levels, all other factors being equal. This means general purchasing power affordability levels for all real estate goes up. But what happens, in land-scarce, highly desirable locations, is that the very construction of these high-rise structures in itself creates a new, even more intense “vibe” that makes more and more people intensely want to live there.

Then demand becomes what is called, in economic terms, “inelastic”—it doesn’t go down as prices for the growing commodity stay the same or go up, because buyers are "price-inelastic" in response. They are prepared to pay just about whatever is demanded, just to become one of the chosen few who can say they live in these rarified locales. And, it is not as if the renting or purchasing of this new “land” in these buildings reduces in any way the number of inhabitants living elsewhere in the area. It just means more inhabitants per square mile, more congestion, more gridlock, in part because most of the lower level “worker bees” in these urban locales can no longer afford to live there and are condemned to longer and longer commutes—mostly in cars because of the paucity of effective and sufficient public transport. 

Meanwhile, Bay Area planners are moving ahead with full fervor in implementing what might humorously be referred to as just this latest, in a long series of spiritual, “great awakenings” which have periodically swept American urban planning history—"The Smart Growth Religious Movement”!. Elmer Gantry never had it so good!. Young and old, rich and poor, educated and uneducated, are all listening raptly in the pews—all wanting to be saved from the predicted coming planetary apocalypse—particularly if they are living, or want to live, in highly desirable areas such as the Bay Area. These latest spiritual salesmen, replete with high-sounding credentials from “urban planning” schools, and “distinguished architecture departments”, are peddling this nonsense in boutique cities all along the coastlines of the USA, touting this latest urban planning theory as the panacea for all that ails us. And the big-bucks, high-rise developers are waiting impatiently in the wings, waiting to see if they can take advantage of this phenomenon—while feeling virtuous in the process. All this, when it is absolutely as evident as the nose on one's face that these "high-rise, transit-hub centered” megaliths are producing exactly the opposite effect of what was originally intended, particularly in areas such as San Francisco.. 

Furthermore, according to the San Francisco Chronicle, about 20% of all residential purchases in San Francisco today are by foreign buyers—mostly Chinese. And in some buildings, the absentee ownership runs at 40%. They serve as offshore parking spots for capital fleeing China—as the Chinese economy begins rapidly cooling off. Vancouver is a perfect example of where SF is headed—a new Shenzhen. Also, there are many other “black swans” out there, in addition to a Chinese financial collapse, that could bring all this smart growth development crashing down.. Domestically, Dodd-Frank is a joke—there is less of a wall between commercial and investment banking today than before the crash—and banks “to big to fail" are bigger than ever. The public is more indebted than ever before. The stock market is an expanding bubble based on a lot of froth.. The student loan indebtedness crisis is approaching the bubble level of the last real estate crisis.The tech market has a weaker financial basis than before the 2000 crash. Leading VC figures in the valley are already ringing the alarm bell. We are two thirds of the way through another Bay Area real estate bubble, with legs of maybe two more years. The drought is just beginning to bear fruit in terms of its approaching huge, negative impact on agribusiness in California. Meanwhile, vineyards are crawling up and down the sides of more and more hills all over California, from San Diego county even up into far Mendocino—as if the aquifer will go on forever. The fires have just started. One previous high level official in the CDF noted that the Sierra could now literally burn, almost from one end to the other if conditions continue as at present. And why won’t they? We are increasingly subject to the differential impact of polar precipitation streams, which dump primarily on the Sierra, and El Nino streams, which dump primarily on the Coast range. Climatologists recently are saying to expect more of the latter and less of the former—meaning declining possibility for precipitation run-off that can be harvested. Up on the shores of Clear Lake, most of the forests appear just about dead. This summer’s fires are just the beginning. Wait until next year. 

The overall effect of this disastrous, “smart growth” planning “religion”, which has been filling the pews now for the last several decades in the Bay Area, is presently staring us in the face—everywhere. But, tragically, the public has not yet come to the realization that “the smart growth emperor” quite simply no longer has any clothes! This is typical when people are swept away by a new belief system. It takes a long, long time for the reduction of such cognitive dissonance, because these beliefs are very deeply held, for very emotional reasons.. Maybe, only long-term, on the couch, therapy can be the only real cure for this neurosis! After all, don't we all want to save the planet, and by the way, don’t we all also want to live in more exciting, high-rise, eco-friendly downtowns? How could anyone believe otherwise? The sad reality, however, is that the “Smart Growth Emperor" now truly is wandering around stark naked, and we just have to come to terms with this reality. The solution for generating more housing in high-demand, “inelastic demand" urban locales such as San Francisco and Berkeley, without generating undue excitement or “vibe” in the process, is a steady, even-handed construction of modest, mid-rise, infill and affordable housing units, as necessary. This will best avoid the potential dangers of “boom and bust” urban planning which suddenly creates too much housing, and then is just as suddenly confronted with a market collapse, with its concomitant damage, as we have seen so many times before, and which is ever more likely in the increasingly volatile international economic atmosphere of today. Unfortunately, in the beginning, de-programming of our current urban planning, smart growth belief system may be a bit painful, as is all de-programming-- but in the long run it would be well worth the effort!