Economic Facts and Fallacies

by Thomas Sowell

Respect for property rights means that existing residents and potential newcomers compete for the same space on an equal basis in the marketplace, rather than in a political process in which only the existing residents can vote.

While the existing residents may choose to believe that they have a right to “protect” their community against outsiders by using the power of government, the Constitution of the United States requires “equal protection of the laws” to everyone, regardless of where they happen to live or how long they have lived there. Moreover, what existing residents choose to call “our community” is in fact not their community. Each resident owns only the private property which that particular resident has paid for. Those existing residents who choose to sell to developers have just as much right to do so under the Constitution as those who prefer to keep the community as it is.

Where thousands of acres of land are taken off the market around an upscale community, that can mean millions—or even billions—of dollars’ worth of land being made unavailable to others, for the benefit of the existing residents of that community.

Merely by forbidding or restricting what can be built on that land, the government automatically lowers its market value, often drastically. At these artificially lower prices, various entities—private or governmental—can then take over the land as “open space” at a fraction of what other people would be willing to pay for it as a place for building housing. In other words, the real value of the land, as a resource which has alternative uses, can be some multiple of the money that changes hands when governmental or private non-profit organizations acquire it as “open space.”

“Nobody wants to give up this way of life,” says Carol Harrington, who has lived in the Salinas area since her youth. Wild turkeys, wild pigs and deer roam on her 16 acres.

Land-use restrictions protecting “this way of life” have a cost paid by others, not only in housing prices in the county that take 60 percent of the median family income for mortgage payments, but also in the fact that 39 percent of the homes in the Salinas area had more people per room than 99 percent of all homes in the United States.56 In other words, the “open space” of some has entailed the overcrowding of others, as less affluent families have had to double up in a home or apartment built for one family, or else a whole family may have to live in one rented room, in order to cope with artificially high housing prices.

But they did not buy those settings or those views or pay to have them guaranteed to remain the same in perpetuity. Other people with other preferences have had the same rights under the Constitution, at least until courts began to erode both property rights and the “equal protection of the laws” prescribed by the Fourteenth Amendment.

Such restrictions have been especially prevalent in overwhelmingly upscale liberal communities such as those in coastal California, where concerns are often expressed for the poor, for minorities, and for children—all of whom are among those most often forced out of such communities by high housing prices. In San Francisco, for example, the exodus of people of modest to middle-class incomes was shown in census data which revealed that, between 2002 and 2006, the number of households with incomes below $150,000 a year declined by more than 16,000, while the number of households with incomes of $150,000 and up increased by more than 17,000.57 Like low-income minorities, families with children have also been disproportionately forced out of such communities by sharply rising housing prices. Sharply declining school enrollments—from 15,000 to 9,000—caused several schools in Palo Alto to be closed within a few years, beginning during the decade of the 1970s, when that community’s housing prices nearly quadrupled.58 Declining populations of children have likewise led to many school closings in San Francisco and San Mateo counties during the same decade and in later decades, even though the total population in these counties increased.

As for the argument about “preserving” things for “posterity,” that boils down to allowing the posterity of existing residents to keep out the posterity of other people.

All of these have long been overwhelmingly upscale liberal communities with overwhelming government restrictions on the building of housing. “San Francisco’s black population has dropped faster than that of any other large U.S. city’s,” according to the San Francisco Chronicle.62

Cities reduce the costs of some things and increase the costs of others. The high fixed costs of building reservoirs, hospitals, or electric power lines can be spread over vast numbers of people living in a limited urban area, reducing the cost per person, compared to what it would cost per person to supply the same things to a population more thinly spread over vast countrysides.

The human race could not have survived for thousands of years if every trace of impurities was fatal. But the human wastes and discarded food from a million people living in a 50-square-mile area cannot be absorbed by the land or water as fast as it is created.

Without building costly water supply systems and costly sewage systems, the water will quickly become too dangerous to drink and perhaps even too dangerous to wash with. Much of the urban land, being paved over, has even less capacity to absorb the wastes, so that discarded garbage alone is a deadly menace to public health unless there are costly systems in place to keep collecting and disposing of it outside the city.

Crime control can also be more costly per person in a city, where the anonymity of vast numbers of people can enable criminals to more readily escape detection than in a small community where most people know ...

In such small communities, personal ties make witnesses more likely to come forward after a crime or even to intervene...

In short, the crime control exercised by both citizens and police in a small community—the former free of charge to the taxpayers—is more likely to be left more heavily in the hands of the police in an urban community, where people are muc...

Urban residents in low-income neighborhoods often also pay more for ordinary grocery items or other common purchases from drugstores, hardware stores, and other merchants.

Not only are people in low-income urban neighborhoods less likely to have cars, the stores there are unlikely to be able to afford the land prices required to build huge parking lots for cars if they did have them.

Moreover, if this lowincome neighborhood is also a high-crime neighborhood, people from outside the neighborhood are less likely to shop there, as people from far beyond Page, Arizona, drive to its Wal-Mart.

Thus inhabitants of low-income neighborhoods—most of whom are neither criminals nor rioters—end up paying higher prices because of those among them who are.

There is no need to attempt to determine the net effect of cities on costs in general. First of all, there is no such thing as costs in general. There are particular costs that matter differently to particular individuals and enterprises, and those individuals and enterprises can weigh for themselves the various costs and benefits that affect them. The assumption that third-party observers can make better decisions than the people directly involved has produced many urban fallacies and many economic and social disasters.

The belief that third parties with no stake in the outcome are empowered, morally as well as politically, to override the decisions of those who do have a stake in the outcome has been institutionalized in “city planning” studies at universities, in “smart-growth” laws and policies, and in various crusading movements to stop “urban...

“Yes, funny thing. It has among the lowest delinquency, disease and infant mortality rates in the city. It also has the lowest ratio of rent to income in the city. Boy, are those people getting bargains. Let’s see. . .the child population is just about average for the city, on the nose. The death rate is low, 8.8 per thousand, against the average city rate of 11.2. The TB death rate is very low, less than 1 per ten thousand, can’t understand it, it’s lower even than Brookline’s. In the old days the North End used to be the city’s worst spot for tuberculosis, but all that has changed. Well, they must be strong people. Of course it’s a terrible slum.” “You should have more slums like this,” I said.

During the 1960s, one neighborhood in San Francisco had the lowest income, the highest unemployment rate, the highest proportion of families with incomes under $4,000 per year, the least educational attainment, the highest tuberculosis rate, and the highest proportion of substandard housing of any area of the city. That neighborhood was called Chinatown. Yet in 1965, there were only five persons of Chinese ancestry committed to prison in the entire state of California.

The demolition of any neighborhood will of course destroy not only the physical structures of that neighborhood but also the human relationships that make it a viable community, as its inhabitants are scattered to the winds.

The idea that third-party observers have both the right and the duty to arrange other people’s living conditions differently from the way that those people have arranged these conditions themselves was not even peculiar to the United States.

However, expansive judicial interpretations of such Constitutional provisions in more recent times have given increasing leeway to government officials to seize private property for an ever wider range of reasons, including “urban redevelopment.”

Requirements for “just compensation” to property owners when their property is seized by government are by no means always honored. Appraisers hired by government officials obviously have a conflict of interest when they know that making high or low appraisals can affect whether they will be hired again in the future.c Even with honest and objective appraisals, the very fact that the government has threatened to use its power of eminent domain to destroy and “redevelop” a given area means that the market value of properties in that area is likely to fall, perhaps drastically.

Banks become less willing to lend to homeowners or businesses in that area, so even if the area was not blighted before, the unavailability of loans to maintain or upgrade local homes and businesses means that these homes and businesses can be expected to deteriorate faster than usual during the years that can pass between the time when “redevelopment” plans are announced and the time when the threat of demolition through eminent domain hanging over them is eventually carried out.

When the owners of small businesses like restaurants, barbershops, or hardware stores own a building where these businesses are carried on, they have typically invested not only in acquiring a building but also have invested years of effort in developing reputations and contacts that continue to build their clientele. Moreover, their clientele may over the years become far more valuable than their building. Yet when the government decides to level that part of town and replace existing homes and businesses with some new redevelopment, it compensates the owners of these businesses only for the value of the physical structure, not for the often much larger value of the loss of their clientele, who are now scattered to the winds by mass evictions.

For example, a study of people who had been displaced from a close-knit community in Boston found about half of them disturbed or depressed.67 While many of them found better housing elsewhere, 86 percent of them paid higher rents than before they had been forced out of their former neighborhood.68 These particular displaced people were white. Other studies show even higher proportions of displaced blacks suffering the same emotional reactions and even higher proportions of their incomes now being required to pay rent in their new homes. For displaced people in general, one study concluded that the “the average uncompensated loss which each is compelled to suffer amounts to the confiscation of from 20 to 30 per cent of one year’s income.”69

By 2002, Philadelphia had blown up twenty high-rise public housing projects. Chicago blew up twenty-eight 16-story buildings, containing more than 4,000 apartments.

In south suburban Chicago, with one of the highest concentrations of voucher holders in the country, middle-class African-American residents complain that they thought they’d left the ghetto behind—only to find that the federal government is subsidizing it to follow them.

In Riverdale, a school “once boasting a top academic reputation” has seen its achievement levels drop, refuting “the idea that shipping poor families to good schools in the suburbs will cause an education ethic to rub off.”

The city of Houston took in more than 100,000 people who had fled New Orleans in the wake of that hurricane. These were people whose household incomes averaged only about half of the incomes of existing Houston residents, people whose children did less well than other children in Houston’s schools, and people from a city whose murder rate was almost four times that in Houston. Their transfer to Houston was followed by a sharp increase in Houston’s crime rate, especially murder.

changing people’s location does not change their behavior.

Like many other critics, he deplored the “sprawl and shapelessness” of cities as seen from overhead. In other words, the aesthetic criticism of much suburban development has been that it does not look attractive to third parties flying over it. But obviously such development would not have taken place and grown if it were not attractive to those on the ground who moved into such places.

Modern critics blame the automobile for suburbanization or “sprawl,” just as in the nineteenth century the Duke of Wellington blamed the newly created railroads for encouraging “the common people to move about needlessly.” Obviously the “common people” themselves would not have moved if they had considered it needless.

“Planned” communities—whether planned by governments or by private builders under the direction or constraints of government planning commissions—may better meet the preconceptions of observers without necessarily serving the functional purposes desired by most people.

What is called “smart-growth” in some places is government imposition of the preferences of observers, critics, activists, or “experts” to over-ride the desires of the people themselves, as expressed in what they are willing to spend their own money to buy or rent.

It is as misleading to speak of “planned” and “unplanned” communities as it is to speak of planned versus unplanned economies. In both cases, individuals and enterprises making decisions independently of government officials do not behave randomly or chaotically but plan just as much as any planning commission. What government planning means in practice is the suppression of individual plans and the imposition of a politically or bureaucratically determined collective plan instead.

“Unplanned” communities, like “unplanned” economies, must be guided by the desires of people at large, in order to earn their money, whether or not those desires are understood or approved by third party observers.

Some of the most alarming claims and urgent demands for more “open space” preservation laws and policies have been made in places where much, if not most, of the land is already open space on which nothing is allowed to be built.

In 2006, for example, various conservation groups in the San Francisco Bay Area advocated setting aside an additional one million acres as open space on which building would be forbidden by law—even though, as the San Francisco Chronicle reported, “the Bay Area enjoys what is likely the most open space of any metropolitan area in the world.”

Of the 4.5 million acres in the San Francisco Bay Area, only 720,000 acres were developed—which is to say, five-sixths of the land remained undeveloped, despite rhetoric which might suggest that open-space advocates were trying to save the last few patches of greenery from being paved over. M...

The question here is not whether open space is desirable but whether an open-ended commitment to ever more open space—or anything else—is desirable. It is especially important to weigh costs against benefits when there is crusading zeal and heady rhetoric in favor of something that virtually everyone regards as desirable, because crusaders seldom pause to do cost-benefit analysis.

The American government in fact pays farmers billions of dollars to take farm land out of production, in order to try to keep agricultural surpluses from being even larger and more costly than they are.

The fact that so many farmers are abandoning farming, and that so much agricultural land is available for building residential communities, ought to be decisive evidence against those who raise alarms about the dangers of “losing” farmland. Indeed, the very need to pass laws to prevent this land conversion from taking place contradicts the rationale used to justify such laws.

When half the people in a city relocate to the countryside, half the pollution may go with them but, if so, that can mean that there is only half as much pollution back where they left. The case that there is a net increase in either the total pollution or the total use of natural resources from a relocation of people is one that would have to be made explicitly and supported empirically, not insinuated by showing that pollution and resource use are greater in occupied places than in unoccupied places. Moreover, the farmland that many are anxious to preserve generates pollution of ground water from the run-off of chemicals used in growing crops and pollution of the air from the use of insecticides and fertilizers.

Like everything human, cities are imperfect and their benefits have costs—something accepted matter of factly by most people but, among some, a reason for laments, crusades and, sometimes worst of all, “solutions.”