Subject: [Capr-discussion] FW: Zoning tax for Seattle
Mr. Ross:
I was a caller to your program on August 26,
2005. That was the day you had Futurewise Executive Director Aaron Ostrom on
the show. I was very happy to hear that both you and Mr. Ostrom were outraged
that regulatory costs in King County could be as high as $200,000 per quarter
acre. If your shock at the number was genuine, I hope you find this
material interesting. If your shock was not genuine, but just a mechanism
to impugn me, then hit delete and have a nice day.
I have attached a
copy of the paper from which I calculated the $200,000 I stated. Just to be
sure that my math was correct, I asked the professors who authored the paper
to confirm the number. See the email exchange below with Professor Gyourko
confirming the $200,000. Mr. Ostrum suggested that $20,000 would be the
absolute maximum possible regulatory cost. Note that using the highest priced
land in the United States (San Francisco) as the cost of land on the margin
(which would give the lowest regulatory cost possible), we would still have
a regulatory cost of $120,000 per quarter acre. I realize that
you requested an itemized list of costs for sample parcels but I can find
no such study. Professors Glaeser and Gyourko appear to have the
best available science on the subject. If they do not, I look forward
to reviewing whatever material you are using.
I certainly can
understand that you would have limited knowledge of this subject. It is
unlikely that Mr. Ostrom, whose organization is driving much of this
regulatory cost, would be unfamiliar with the costs of that regulation. It is
disturbing that you would give him a platform from which to distort the
discussion as well as participate in denigrating those few of us who try very
hard to do our homework before opening our mouths.
You will need to
read the professor's paper to make sense of the following calculations: 1
acre = 43,560 square feet thus 1 quarter acre = 10,890
square feet
Table 4, Column 4 gives the land cost per square foot at
the extensive margin which includes regulatory costs - $18.91 per
square foot for the Seattle area - so: $18.91 X 10,890 = $205,929.90 per
quarter acre
From that we subtract the hedonic price of land given in
Column 3 (the negative value in column 2 helps show why the Log-Log
regression is likely more accurate plus the higher number reduces the
regulatory cost) - $0.48 per square foot for Seattle: $0.48 X 10,890 =
$5,227.20 per quarter acre
Simple subtraction $205,929.90 - $5,227.20 =
$200,702.70 the regulatory burden of one quarter acre.
Note that the
data used is from 1999. There has been considerable inflation in housing
costs since then - $262,676 mean house price then (Column 5) compared to
approximately $375,000 mean cost now (from August 6, 2005, article in Seattle
Times business and technology section). It seems reasonable, though I don't
have a study in hand, that much of that increase would end up reflected in
the regulatory costs rather than the hedonic value of the land or the actual
construction costs. $262,676 adjusted for inflation (https://www.westegg.com/inflation/infl.cgi)
would currently be $299,587, so the current regulatory cost is more
likely $275,000.
There are approximately 5,000 to 6,000 new single
family homes and the same number of multifamily units built each year in
urban King County. According to the King County comprehensive plan there will
be a maximum of 6,000 homes built in rural King County over the next 20 years
(that is 300 per year compared to 12,000 units in the urban areas - and
Mr. Ostrom's personal boogey man is urban sprawl in rural King County?).
If we use the 6,000 single family homes in the urban area and ignore
the regulatory costs of the multifamily units, that is 1.2 billion
dollars per year of regulatory cost. Perhaps you could provide me with
the itemized list justifying that as the best use of that money! I
suggest that it is justifiable only if the intention is to drive the poor
and middle class out of the area so as to save the wonderful quality of
life we already have here for the rich and their servants.
If you made
it this far, your shock was indeed genuine. I appreciate your effort to learn
more about the complex issues involved.
Sincerely,
Rodney
McFarland, President Citizens' Alliance for Property
Rights
-----Original Message----- From: Gyourko, Joe
[mailto:gyourko@wharton.upenn.edu] Sent: Saturday, September 03, 2005 9:50
AM To: Rodney McFarland Cc: Edward L. Glaeser Subject: RE: Zoning tax
for Seattle
Mr. Mc Farland,
You did the calculation
correctly. I would not bet anything on the precise number, but even if
you assume we grossly underestimated the value of land on the margin and--San
Francisco's $7.84 per square foot number (from col. 2 of Table 4) is closer
to the truth for Seattle--the regulatory cost still is over $120K. It
is a large number for the Seattle market no matter how you look at
it.
As for 'being in the pay of developers', I think life is far too
short to get into those types of shouting matches so I will pass on
the opportunity to be on Mr. Ross's show. The other side hurling
such charges will not believe you no matter what. For the record, we
received no funding from developers for that study. The paper was
produced for a Federal Reserve Bank of New York conference on housing
affordability. I am pretty sure we received a small honorarium from the
New York Fed, but it has been so long that I could not say for sure (or
precisely how much).
I have done other research on this issue, and the
real estate center I direct at Wharton certainly has developers who
contribute to our program. However, they have no formal or informal
control or oversight of any faculty member's research. Moreover, the
critics generally are wrong in presuming that large builders in particular
are vehemently opposed to restrictions on development. The costs
associated with these restrictions generally can be borne more easily by
bigger firms who can spread them across a larger base. Thus, they
provide them a competitive advantage relative to the many small firms in the
industry--although I doubt any large firm CEO would ever say that
publicly.
I hope that helps. Good luck with your
work.
JG
------------------------------------------------------------------------ ------------ Joe
Gyourko Martin Bucksbaum Professor of Real Estate & Finance Director,
Zell/Lurie Real Estate Center at Wharton The Wharton School 3620 Locust
Walk Room 1480, Steinberg-Dietrich Hall Philadelphia, PA
19104-6302 P: 215-898-3003; F: 215-573-2220 email: gyourko@wharton.upenn.edu website:
https://rider.wharton.upenn.edu/~wred/Gyourko/gyourko_home.htm
-----Original Message----- From: Rodney McFarland Sent: Monday, August 29,
2005 2:03 PM To: eglaeser@harvard.edu; Gyourko,
Joe Subject: Zoning tax for Seattle
Gentlemen:
While a caller
to a local talk show (Dave Ross, KIRO, Seattle) this past Friday, I quoted
$200,700 as the regulatory cost of a typical house on one quarter acre in the
Seattle area. I had arrived at that number using table 4 in your paper "The
Impact of Zoning on Housing Affordability." I was laughed off the air and
accused of gross distortion. You gentlemen were accused of being in the pay
of "developers."
Did I arrive at the correct dollar amount for one
quarter acre in Seattle? If I did, would one of you be willing to be on the
Dave Ross show to discuss your conclusions? It is unlikely Mr. Ross would
actually have you on, but I would like very much to be able to make the
offer. Is it true that some "developer" funded your study on which your paper
is based?
Thank you for your excellent work and your consideration of
my request.
Rodney McFarland, President Citizens' Alliance for
Property Rights