“It’s not housing that costs too much. It’s land that costs too much.” The first of a series of profiles of June 2021 IMCL speakers and their work
Patrick Condon is a long-time Professor of Urban Design at the University of British Columbia, a highly influential urbanist, a popular speaker, and an author with noted works including Seven Rules for Sustainable Communities: Design Strategies for the Post Carbon World. He has also been frequently mentioned on the shortlist of mayoral candidates for the City of Vancouver, Canada. His latest book, Sick City: Disease, Race, Inequality and Urban Land, comes at an especially important time as cities emerge from the pandemic, and struggle with all these issues. Michael Mehaffy, Executive Director of the IMCL, recently discussed the book and related issues with Patrick.
Michael Mehaffy: Patrick, your new book, Sick City, comes at an auspicious time, of course, as we begin to emerge from the pandemic. And this experience has certainly exacerbated the deep problems in our cities, and also revealed their magnitude in a rather shocking way. I’m thinking especially of the affordability crisis, growing displacement and homelessness, and the decline in health and quality of life for a huge sector of the population. Meanwhile our bad habits don’t seem to be changing as fast as they need to — sprawling, car dependent development, which works pretty well in the short term for wealthier people, but once again hits vulnerable populations especially hard. And really everybody loses in that equation — it puts a drag on the whole city, as research has shown.
I guess one could take a pessimistic view at such a moment — but there’s an optimistic outlook implied in your book, am I right? That these problems didn’t come out of nowhere, they have understandable causes, and understandable remedies that we can enact if we choose? Especially when it comes to the underlying economics of the land?
Patrick Condon: That’s right Michael. As an urbanist I am not interested in just diagnosing a problem; there are many books that do that. What I am most interested in is in understanding the mechanics of inequality, as they play out in the urban landscape, and what we can do as urban designers, planners, and local officials to mitigate these systemic pathologies.
Over recent years I have become more and more frustrated by what I see as huge confusion about a simple sounding problem: why does housing cost so much. I am American born but have spent 30 years in Vancouver, Canada. And in that thirty years I have seen housing costs explode from about seven times average wages (which was already considered an unaffordable ratio) to the current ratio of 20 to 1. And it’s very obvious there that this is not a problem of constraints on the supply of housing (by the resistance of NIMBY groups, or an ossified policy process). Vancouver is famous for promoting downtown living in the style of the high rise “point tower” form. We doubled the residential population of our downtown peninsula from 40,000 to over 80,000 in just fifteen years. Prices went up. We legalized secondary suites in single family districts covering 2/3rd of the city. Prices went up. We legalized rear lane houses city wide. prices went up. We built thousands of new units along our arterials. Prices went up. We legalized the conversion of every single family lot in the city to duplexes, each duplex with a rental unit attached. Prices went up, to the point that each new half duplex created marketed for far more than the original single family home. It’s absolute crazy town price wise, and adding supply doesn’t help.
Why does all this matter, and what connection does this have to the pandemic and the USA? The connection is this. These irrational price gains are, counterintuitively in the middle of an economic collapse, spreading rapidly to cities in the US, cities not as familiar with this insanity as we are. And as you say, it’s hitting the young, Black and Brown, and lower income wage earners, inordinately hard. Vancouver is the canary in the coal mine, indicating an untenable future. We need to change our land development practices very soon, or our fragile urban societies cannot be sustained.
So I guess a conclusion to be drawn from Vancouver’s failures is that just adding supply — what some have called “build, baby build” — doesn’t work? And yet so many cities still seem to think that’s the simple answer, or maybe it’s the simplistic one. But I take it that what you’re suggesting is that we need to pay more attention to the underlying economics of the land? What are the issues there?
Yes that’s the issue precisely. It’s not housing that costs too much. It’s land that costs too much. The cost of building a square foot of interior space has not risen tremendously in the past 30 years, but the price of land has. Land prices have gone up by a factor of 500 percent in just seven years in many city districts, and tragically that land price increase is hitting lower income districts in major metropolitan areas the hardest! Clearly there is something fundamental going on here, and it’s bigger than gentrification, or so called “foreign investors,” or lack of housing supply. Much bigger.
What is really behind it is a global glut of cash in the hands of investors with not a lot of great places to invest. Stocks are overpriced, bonds don’t deliver returns anymore, and after those two, the only thing really left to invest in is real estate. And by real estate, again, I am not talking about the house, I am talking about the land under it. A house a thousand miles from anywhere is worthless, a house on city land can cost a fortune. It’s obviously the location you buy. “Location, location location”! And what we’ve learned up here in Vancouver is that it doesn’t help to rezone land for higher density in hopes that the land share of the house price will go down. All that does is boost the price of the land with the land speculator being the only beneficiary. It doesn’t cheapen the per square foot price of the home at all, and in many cases, as with our duplexing zone change, it has the perverse effect of increasing it.
So I’m sure our conference attendees will want to know, what are the tools and strategies to combat this, that have been shown to be effective? And I guess I should break that into two questions: what are the long-term tools and strategies that might require more systemic reforms that we should all work towards, and then what are the more available and practical ones that we can use now, to fight the immediate crisis? What are we learning from other cities?
Well, there is a long term and a short term approach. I will start with the long term one because I really have to say a few things about the underlying economic mechanics of all this, going back all the way to Adam Smith. It was he who first drew attention to the problem of land cost. In talking about landlords he had this to say (among many other unfavorable things):
“As soon as the land of any country has all become private property, the landlords… love to reap where they have never sowed, and demand a rent even for its natural produce.”
A half century later, David Ricardo, another English economist, put the problem into the form of a law, known to this day as “Ricardo’s Law of Rent” which says, in effect, that virtually all of the productive value of a location will go not to the entrepreneur or the worker but to the land owner as rent. Yet another century went by before the American Henry George fully fleshed out the problem this poses for cities. He said that land rent, or price, will absorb so much of the capital value produced by city entrepreneurs and city wage earners that, in time, virtually all of that capital value gets drained into unproductive land price. When that happens, it threatens the most vulnerable workers with homelessness, and pushes the entire regional economy, and even national economy, to the point of depression. He wrote during the time of Marx, when industrial depressions were a relatively new phenomenon, and he linked land speculation to economic collapse. Spectacular land price speculations do tend to precede spectacular economic collapses. 1929 and 2008 are two cases in point. Also, the seemingly intractable problem of homelessness in our most successful cities, like San Francisco, rather proves his point. That’s why he titled his most important book Progress and Poverty, because the main thesis is that as cities become more and more wealthy, the result is that landowners get amazingly rich, while a larger and larger chunk of city residents live in precarity. Sound familiar?
Anyway, his proposed solution was to eliminate taxes on capital (a factory or apartment building for example) and income (taxes on wages), and to tax land value instead. This would fund all necessary social services and city infrastructure, and unleash the capital creating value of both workers and entrepreneurs. A win-win.
It just so happened that about the same time, the end of WWI, Vienna found itself in a position to implement a housing plan based on this idea. After the fall of the Hapsburg Empire and the enfranchisement of all Vienna citizens, that city (facing an unaffordable housing crisis) imposed a large progressive tax on apartment buildings — which of course was really a tax on location, or land — and streamed that new revenue into various forms of non-market housing. Over the course of a few decades (interrupted by WWII) the city successfully lowered the price of urban land by taxing it heavily, and then used the proceeds to buy land at the bargain basement prices their own taxes produced. Now, over 50% of housing in Vienna is non-market housing. Interestingly, if you want to rent or own a market-rate apartment in Vienna, it is a fraction of the price of a market-rate unit in equivalent cities such as Paris or Berlin. This is because the size of the non-market housing sector provides a brake on the speculative value of market-rate lands.
So the long term approach is to tax land to produce housing, in the way that Vienna did it.
Shorter term, and with an eye towards this problem in the USA, there are, surprisingly, a lot of ways to do this that are practical, both financially and politically. They all have to do with how we use zoning as a tool. We now have an advantage that neither Henry George nor the leaders of Vienna had back then. It’s called land use zoning. Zoning, and most people don’t really think of it this way, is essentially a tax. Zoning by its nature lowers land value below its so called “highest and best use” value. It’s typically not ok to put a 60 story building next to a single family home, or a pig rendering plant next to a church, even if that’s what the “market” might be demanding. Zoning has survived dozens of constitutional challenges dating back to the 1920s. Originally used to limit incompatible land uses, zoning is increasingly used to insure affordability. Many US municipalities, particularly in California where the problem is most severe, are insisting that density increases granted by the city must be accompanied by affordability concessions provided by the developer (usually in the form of low- to no-cost non-market housing units). This expansion of zoning powers has also survived Supreme Court challenges.
What is most important here is to understand that this process helps to (what I call) “discipline the land market”. The requirement to include affordable housing reduces the potential final financial yield of the project. As such this reduced yield needs to be subtracted from project costs. And the only place to subtract it is in the “residual price” for the land. So inclusionary zoning requirements, properly understood, don’t increase the price of market units — they reduce the price of land.
Finally, some municipalities are now taking this a step further. Cambridge, Massachusetts has passed what amounts to a city-wide inclusionary zoning ordinance. They are allowing a doubling of density on any parcel in the city, if and only if the project produces 100 percent permanently affordable housing, perpetually pegged to median incomes. It is not considered a “taking,” because landowners are perfectly free to develop market rate units in conformance with existing zoning limits. But if they choose the Affordable Housing Overlay path they get double density. Here again the important point is that this “disciplines the land market”. If you just doubled the density allowance city wide, hoping to increase affordability, without insisting on it, the only thing that would happen would be that land prices would also double (or more). In the end only land speculators (or as Adam Smith might put it landlords) would win. The final per square foot rents or purchase price would not drop. Those in need of housing would still be either drained of funds or excluded.
The approach you describe sounds encouraging, and badly needed — especially at this moment, when so many cities are struggling to cope with exclusion, displacement, and declining opportunities for a large part of the population, notably immigrants, the young, and other vulnerable residents.
You recently hosted the journalist Doug Saunders for a conference I had the pleasure of attending. He is author of the remarkable book Arrival City: How the Largest Migration in History Is Reshaping Our World. It seems to me his point was that cities need to offer the “rungs of the ladder” to provide opportunity for all, to start modest businesses, and to collaborate with others to innovate and develop economically, within a fairly diverse and sometimes rather messy environment. All great cities have done this — it’s how New York, for example, took penniless immigrants from Poland and Italy and Ireland, and turned them into shopkeepers and teachers and doctors. And yet one of the problems we have now with the overheated cores is that there aren’t any more rungs — you have to have half a million dollars to start a McDonalds franchise, say, or you’re frozen out. On the other hand, maybe it’s the suburbs that now have more interesting opportunities? And perhaps we can do some innovative things in the suburbs, say with land policies, that we can’t do right now in the city cores? Maybe the suburbs are the new arena for diversity and innovation? What do you think?
Good question. There are a lot of related issues that tie into this. In my previous book, I spent a lot of column inches on the issue of how to design for “Arrival Cities” (as Doug Saunders puts it), places in the developed world that migrants from the developing world are flocking. As center-city land prices increasingly make these locations unaffordable, not just for migrants, but also for the young and the Black and Brown, the idea of the suburb becomes transformed. In the Vancouver region, migrants no longer land in the city of Vancouver but in Richmond if they are East Asian, and in Surrey if they are South Asian. Suburban settings and even their building types are being transformed in the process. Extended families now adapting 1980s cul-de-sac “monster homes” for their extended families, with welding or motorcycle repair shops in the three car garage. This is all part of the out-of-control economic re-sorting of people by class and income across the urban landscape. This is cementing cultural and economic geographic inequality into our urban landscapes as never before. It’s happening now in a way that exceeds previous imbalances caused by white flight. In the context of this conversation, if we wanted to create a more culturally and economically sustainable region, one where commute times and economic, racial, and class segregation issues were no longer getting worse and worse, we would need to deal with the real problem. And the real problem is the out of control world wide inflation in the price of urban land.
Well, that’s a lot to digest to be sure. But let me ask a final question for now: how would you sum this up as an action plan for urbanists? What can we do about this?
Well, for a start we can stop falling into the “supplyist” trap. Stop saying that if we just add density, housing will become affordable. It won’t.
Collectively, urbanists have very influential voices, earned over 40 years of trying to make communities more livable, walkable, affordable, and sustainable. As the housing crisis blazes out of control worldwide, we can use our voices in the ever more strident policy debates currently raging. It’s worth remembering that Henry George was more a politician than an economist during his too short life (he died of stroke at age 55). That’s why he catalyzed a revolution in thinking during the Progressive Era. We are still the beneficiaries of his efforts, notably in the form of the 16th and 17th amendments. We are living in a similarly crucial time. Speak out.
Secondly, we can bring an urbanist’s lens to the central question: “How can we build great mixed income communities blending the best of market dynamism with a greater public role in managing the land resource base?” In this way, our work dovetails with many current movements, not the least of which are the ongoing second civil rights wave and the push for “decolonization”. Both of those movements are fundamentally about exclusion from access to urban land. If we think about this right, and use taxing and development tools as our Archimedes lever, we can make great cities and equitable neighborhoods. But in my view, we will fail if we don’t recognize that the real problem lies in how urban land price and urban land speculation, under present circumstances, only enriches the rich, and forces the rest into poverty.
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Patrick Condon will join us at the 57th International Making Cities Livable conference in Carmel, Indiana, June 8-12, 2021 (https://www.livable-cities.org/). His new book Sick City: Disease, Race, Inequality and Urban Land is available for free download (PDF) at
And in print in the US at https://www.levellerspress.com/product/sick-city-disease-race-inequality-and-urban-land/
And in Canada: http://bit.ly/sickcitylulu