Sunday, April 05, 2009

Freedom to/from Sprawl in Calgary

-Google view of North Calgary where citizens are indentured servants to automobiles.

Much applause from me this week for the Plan It Calgary group that released its findings on city planning and sprawl. They actually quantified the extra cost of servicing low density neighborhoods on the edge of Calgary versus more higher density projects closer to the center.
11 billion dollars.
It's hard to believe this isn't a ubiquitous metric at city hall. Traditionally city growth is at the whim of land developers whose only interest is making a king's ransom from buying land and subdividing it on the periphery.
This week Plan It suggested that high density was the only way the city could afford to grow. The developers cried foul with suggestions that the market should decide. Freedom and fairness, they suggested, was being violated. The interface between city rules and a free, unfettered, organic development is interesting. Like many other markets to date, the housing marketplace has only appeared to act freely.
Up till now, developers and the market have been free to build at improbable distances from the core, while everyone else subsidizes the additional cost of providing what few services are brought to these areas. Public transportation is hardly viable in these areas and the high cost of automotive infrastructure is not borne by the people who chose to live there. If these ridiculous costs were fairly borne, the marketplace would very quickly reveal that not many people would freely chose to live there after all.
Suburban living is incommensurate with my lifestyle but I am sympathetic to it. A new 3 bedroom house in my neighborhood currently sells for $850 000 while a similar house and yard in the newest suburb sells for $550 000. Under those conditions its easy to see where demand concentrates but that cheaper house in the suburbs only exists when everyone in the center defrays the extra costs of infrastructure. The tens of billions of dollars that Calgary will spend over the next ten years could be put to far better use elsewhere. Imagine what a city could do with 11 billion extra dollars! So Hurrah for Plan It and the hard money math that few in city hall can now avoid.

I'm all for a free market in real estate. When one appears, I'll support it.


rainswept said...

Not just the hidden costs either.

Even in statistically wealthy Alberta a $550,000 home should be well out of reach a typical family. How many are debt free and have $55,000 for a down payment? Well, they can afford such a house... if their household income is over $10,000/month.

As Bill Bonner has pointed out, artificially low mortgage rates and huge tax incentives have led quite directly to "vast suburbs stretching out in all directions, rather than cheaper and more efficient tightly packed apartment buildings."

Or to put it another way, it seems like suburban sprawl is partly brought to you by (in)judicious application of inflation.

and then the_doctor said...

Good point, low mortgage rates have led to overpriced housing though I'm not sure this speaks as much to density issues. I think there are better margins subdividing large chunks of raw land than value adding to smaller, utility-ready chunks of land at the center.

Vincent said...

I think low rates promote sprawl by triggering a surge in speculative demand for property which can only be satisfied by developing new land on the periphery, while simultaneously giving/extending the same artificially low rates to developers and contractors.

Thus the square miles of less-than-half-completed, less-than-1/10th-occupied developments where the bubble has already burst.

The example of Brighton Ridge is instructive

Although I confess that real estate is nowhere near any of my (dubiously) strong suits.

and then the_doctor said...

The Brighton example doesn't happen around my parts due to Calgary's policy of large deposits required by developers to pay for any clean up of unfinished development.
Speculation actually drives the apartment market (high density) harder due to smaller capital outlays and revenue generation in rent. Recently, condo prices dropped more value relative to low density housing, reflecting their position in the speculative market.

rainswept said...

I can't believe there is any real hope of building new apartments in the heart of the city with anything like the ROI of outlying residential property, not to mention the terrific up front costs of highrise building compared with, say, a 20 unit condo development.