Book Review — Broken City: Land Speculation. Inequality, and Urban Crisis (By Dr. Francis K. Peddle)
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Broken City: Land Speculation. Inequality, and Urban Crisis - Professor Patrick M. Condon
Vancouver: UBC Press, The University of British Columbia: 2024, 273, xiii
https://www.ubcpress.ca/broken-city
Review by Francis K. Peddle | Henry George Foundation of Canada
November, 2024
Introduction
The failure of governments, and society generally, to solve the affordable housing crisis has reached yet another level of feverish hand wringing. Politics in Canada are now overwhelmingly colored by the inability of younger generations to live normal lives in the country’s major cities. The years 2022 and 2023 recorded the lowest ever fertility rates in the country, which is reflective of a long term downward trend. Younger people believe they cannot afford to have children and they certainly will not be able to find a house to raise them in. Participation in the economy is now riddled with “precarity” and dislocation. There is a pervasive feeling that the lives of millennials and Generation Zers will be much worse materially and psychologically than the Baby Boom generation, which is now mostly in its retirement years and sitting on a massive portfolio of urban real estate.
The response of governments to steep rises in the cost of living, mostly concentrated for some time now in the rental and housing markets, has been pretty much the same as it has been for a long time. It is worthwhile remembering that house price inflation has outstripped the Consumer Price Index for decades. The problem is not new, but its severity is now acute. The response has usually been to throw more money at the problem, attack perceived regulatory bottlenecks and administrative inefficiencies, and last, but not least, avoid any meaningful discussions about the real problem. The latter is achieved by using a wide array of deflecting terminologies and bogus rules-of thumb about how to solve the problem, despite all historical and empirical evidence to the contrary. A good example of this is the widespread appeal to the law of supply and demand when describing the housing market. The basic assumption is that both sides of the equation are elastic, to use the jargon of the economics profession. This is obviously false. We have been, however, conditioned to think otherwise. The surface, the space, the land on which all real estate development is predicated is anything but elastic. A “house’ is not just a singular entity. It is an amalgam of depreciable human products and expended labor coupled with an ever appreciating value to its surface area in a growing community. Many fictions exist in economics, law, and politics which lead to the terminological obscurities of the housing debate.
The new class structure for society is the divide between the housed and the unhoused, between those who have a stake in ever appreciating urban real estate values and those who must endure an ever widening gap between average wages and access to the housing market either as property owners or renters. Those on the inside, on the so called “property ladder,” are protected by a wide range of tax laws, planning edifices, and socio-political imaginings. Those on the outside are financially blocked from everything to which society wishes them to aspire, family life, property ownership, employment security, and independence. In a world where most things are seen as trade-offs, it is generally assumed that either urban homeowners must relinquish some of their ill-gotten gains or future generations must wait until there is a highly inequitable inter-generational transfer of housing wealth, either inter vivos or testamentary. Governments wish to avoid both Scylla and Charybdis and end up being devoured by both.
Patrick Condon’s Broken City dissects the urban crisis in terms of inequality primarily in terms of the affordability of housing. He assembles discourses in planning policy and tax reform that rarely catch the attention of politicians or the many advocacy groups cajoling them to do something. Even better he proffers some realistic solutions with an ever-present eye to political realities and to the deeply entrenched interests and privilege-centers in the current urban landscape. Condon’s thesis is that the housing crisis is not caused by impeded supply but by the speculatively inflated asset value of urban land (177). This does not mean there is not a shortage in affordable housing. As a professional planner he believes that various types of planning initiatives, such as intensification, when coupled with non-optional affordable housing rules, can dampen down the inexorable and corrosive rise in urban land values. Condon’s view of federal and provincial government programs to ease the crisis in affordable housing is overwhelmingly negative. These programs inject yet another competitor into the urban land value vortex. Likewise, at the local level poorly designed zoning laws when unchained from non-optional affordable housing programs further feed the monster. Things need to change or social unrest will only spread.
What is Broken?
The first five chapters of Broken City dissect the diverse ways in which ever inflating urban land values in the last forty or fifty years can be linked to just about every pathology in the urban anatomy, from dysfunctional transportation systems clogging up the urban blood stream, to geographical inequality targeting disadvantaged communities during COVID, to the flesh-eating disease of land value absorbing the abundance of an otherwise productive economy. Chapter Three is a short historical note on the philosophy and economics of Henry George (Progress and Poverty, 1879), who is Condon’s main inspiration for his focus on the economics, or rather the dis-economics, of the land and the surface space of the world’s major cities. George (1839 - 1897) was the last of the classical political economists working within the framework of the tri-factor economics of land, labor, and capital. After him the rise and dominance of neo-classical economics folded land into capital. Therein one finds the intellectual origins of today’s housing crisis and the inability of governments to address it. George should also be understood as one of the originators of urban economics with his keen observations on economic and human geography.
Some impressive statistics and facts are marshaled by Condon to concentrate the mind on his central thesis. Fifty percent of wage earners in the United States and Great Britain have a negative net worth (15). Average wages have remained flat in the industrialized countries since the 1980s. Housing costs in booming global cities have on average quadrupled in the post war period (13). Even worse, the link between average wages and housing costs has become radically severed. The long-term averages disguise even more drastic increases in housing costs in recent decades. House prices have doubled in the past twenty years (17). Traditionally, the benchmark was you should pay no more than 30 percent of gross earnings for housing. This was assumed to be the fundamental law of real estate economics (7). The hyper-financialization of the housing and rental markets have inverted this ratio. Another way to express the severance of housing costs from average wages in metropolitan areas is to examine the average ratio of annual income to home price. This hovered around one to four during the period 1955 to 1995. That ratio has now dramatically changed with it being one to eight or nine, for instance, in the United Kingdom (44). In New Zealand it is now a whopping one to twelve times average wages. The divergence in productivity gains and average real earnings since the early 1980s is yet another striking example in our time of the economic paradox long since elaborated by Henry George (68). Progress in productivity does not translate into distributional equality for most people when community created land values are not re-cycled back into the public domain. The inequities and dislocations caused by these alarming changes in historical real estate fundamentals are today coming home to roost in most parts of the world. A contorted body economic has widespread ramifications for politics and its current diverse forms of demagoguery and scapegoating.
Condon’s databases and country profiles focus on four English speaking countries, the US, UK, Australia, New Zealand, besides Canada. Many of the trends highlighted in Broken City are well known to urban economists and planners. Nonetheless it is helpful and instructive to see these cross-national data sets collated in one volume. The thing that stands out in Condon’s analysis is just how universal is the problem. Some countries and cities are more in extremis when it comes to housing affordability than others. Nonetheless, the long-term historical trend is globally unidirectional. The truly horrific figures coming out of New Zealand during the last thirty neo-liberal years of housing policy are made only more tragic by the previous historical influence of Henry George in that country. Home prices in New Zealand have increased by 2,000 per cent since 1980 whereas in Canada it is 500 percent (125n16). Sydney, Australia has the dubious distinction of having the second most expensive housing in the world when measured against average wages, with Hong Kong being number one and Vancouver third (177 and Demographia World Urban Areas, 2021).
The uneven ravages of COVID on the poor and disadvantaged ethnic classes within the urban environment are tracked by Condon. Epidemiological studies show direct correlations between the spread of communicable diseases and building types. This can be measured in different ways. High-density buildings with many shared spaces versus single family dwellings in leafy subdivisions. Disease vectors can be linked with number of occupants per room. Housing inequality was the primary vector for the pandemic.
Urban regions are becoming more segregated by income. This has implications for the health and educational challenges of lower income districts (30). Many zoning laws in the past were used to bring about this segregation. For example, setting high minimum lot-area requirements (5 acres is common) excludes poorer people from certain districts. How one travels to work also affects the spread of highly contagious diseases. The New York City subway system is often cited as a primary vector for COVID early in the pandemic. Home ownership rates vary significantly by racialized groupings and recent immigrant status.
Intergenerational inequality was front and center politically with the most recent budget of the Canadian government. Ownership rates of all housing in Canada, the US, Australia, and New Zealand are roughly the same at sixty-five percent. These rates are, however, declining largely because of the inability of millennials to get on the property ladder (40). Unless this is reversed the wealth gap between Baby Boomers and millennials will only get worse. Furthermore, it means that under current conditions more and more of them will become renters with less opportunities to save for retirement. Uncontrollable urban land values create vortices at both ends of the spectrum. Fewer and fewer can accumulate unearned wealth and it pushes greater numbers in successor generations to negative net worth and reliance on the state, which in turn debt finances this reliance in lieu of taxation of the unearned increment. Tax subsidies for corporations and the wealthy, through special treatment of capital gains, which are mostly land gains, all sorts of tax deferments, and idiosyncratic classifications of income are the primary drivers of government deficits, not expenditures.
Social and employment mobility is a somewhat fungible concept with vertical and horizontal implications. Mobility rights are legally protected by the Canadian Charter of Rights and Freedoms. That right is economically undermined every day with the mollycoddling by society of economic rent. Upward mobility, getting ahead in life, job advancement, and savings accumulation for retirement are all vertically impeded by urban land values absorbing more and more of the productive surplus of individuals and society as a whole. We tend to think of mobility more in horizontal terms. Can my life be made better by moving to a better part of the country or to a part of the city where there are more amenities for my stage of life? Neighborhood schools are a priority in the middle years, while the proximity of retirement homes to available care workers put demands on the distribution of workers in the labor force. The wide dispersal of extended families puts enormous stress on parenting. The financial obstacles created by ever rising urban land values ossifies social mobility and exacerbates the divide between constitutionally protected mobility rights and the economic reality of being stuck in poverty or urban ghettos of high rents and low income earners.
Broken City is not an economics treatise. Nonetheless, by highlighting the inefficiencies generated by urban sprawl, the difficulties in renewing cities, and the waste of misguided planning initiatives, it strikes at the heart of what any mainstream economist dreams as an ideal. More efficient cities are more productive cities. Urban environments ought to attract people, talent, and capital, not drive them away as happened in the hellscape of Detroit or what is now beginning to happen in the inner core of Toronto. Regulating Rent provides more productive value to local economies. If there is a fundamental philosophical declaration in Broken City it is that equality and efficiency go hand in hand. We are now a significantly less productive society historically because asset and income inequality are the principal signifiers of our socio-economic structure. Urban land prices are the primary underpinning and reservoir of that hyper-financialized inequality.
The Great Deceptions
Ordinary language has done much to obscure what is going on in the world’s urban economies. Let’s start with the nature of rent. The word rent is usually understood as what you pay to occupy an apartment or for the temporary use of a car. In other words, it is almost universally thought to be something transactional, contractual, individual, and for a defined period of time. The renter does not own what is rented, though there can be rental contracts which lead to ownership. This is not how classical economists use the term. Condon capitalizes the word Rent when he is sharply distinguishing it from contractual rent. Land Rent in the abstract, not in the individual transactional sense, is the capitalized value or price of any piece of land when you think about it in terms of the amount of interest and principal which must be paid over 20 or 30 years to amortize (i.e. pay off a mortgage) the capitalized value (5).
All mortgages in this sense are rental contracts. A mortgage on a human product, however, sometimes called a chattel mortgage, is very different from a mortgage on land, especially in urban areas. Chattel mortgages are generally symmetrical with the economic depreciation of the chattel, i.e. at the end of the amortization period the value of the chattel will be zero. This is not true of land Rent. In growing communities land Rent will always be worth more at the end of the amortization period. Land appreciates in value, or inflates, while all human products depreciate, or deflate, over time. The rates of land inflation may fluctuate somewhat due to interest rates or some other exogenous factors, but the trend is always upward in productive economies and cities. Commodities depreciate or deflate in value at highly diverse rates as the capital depreciation schedules in the Income Tax Act try gallantly to reflect. The classical economists called this communal surplus “economic rent.” In the 18th and 19th centuries it referred exclusively to land. Condon wishes to reserve the phrase “economic rent” as unearned wealth “from a locational advantage, a product monopoly, or a risk-mitigation advantage of some kind” (71). His use of the phrase would include land Rent. Condon rightly notes that this broader use of economic rent has led to a muddying of the waters when it comes to housing. Hence the vicissitudes of the “rent-seeking society,” which he views as an outcrop of neo-classical economics. These are legitimate concerns. After all, as Winston Churchill said, the land monopoly is the mother of all monopolies.
Some urban lands are obviously better situated than others. This is the so-called “margin” which is also a much ballyhooed (and misused) concept in economics. Marginalists of the Austrian school in the 19th century have historically been interpreted as laying the groundwork for the land/capital conflation of American economics beginning with John Bates Clark. Recounting this via dolorosa will not help much to advance the cause of definitional clarity when it comes to the housing crisis, but it is a useful historical perspective for understanding how we got into the current morass and how our basic concepts and language must change in order to better deal with the problem. The “margin” does tell us, however, a lot about land values. Artificial zoning laws create highly differentiated margins. There are also significant marginal differences within homogenously zoned areas.
So, a house is not just a “house.” Perversely “land” is often defined as a building in provincial assessment acts. “Supply” is not elastic or open-ended. “Supply-side” economics do not apply to urban land. Unearned “wealth,” society’s surplus, is often spurious, not real, in this highly financialized world. Urban land Rent is not “rent.” It is something omnipresent, collective, unavoidable, pernicious, and economically dysfunctional. “Market value” is frequently out of sync with all-important “use value” and the capacity of urban lots to serve the community. Housing is the main driver of inequality. Property rights are not absolute. These are just a few of the areas where deceptive language and legal fictions contribute to the overall inability of society to systematically solve the housing crisis and make the urban environment more livable.
We always think of far-off tropical oases when we think of tax havens. Broken City shows that urban land prices are the most luxuriant tax havens in the world. They are right under your feet, out of sight, out of mind. There is the illusion that governments need to put much more money into affordable housing. The reality is that there is too much money in real estate. This sounds sacrilegious. House money is largely debt financed; mortgages created by mouse clicks. Generally, this is a risky game since banks are always technically insolvent because they borrow short and lend long. Much of debt-financed real estate is not capital investment. Rather, it feeds the extraction of Rent from the economy and segregates the population into winners and losers, the housing gentry and the housing precariat, a phrase Condon borrows from Guy Standing, who also has much to say about Rent and the private appropriation of the commons.
The Remedies
Significantly increasing housing supply, more subsidies for non-profits and developers, or the loosening of planning regulations (replacement of NIMBY by YIMBY, 169), or rent subsidies for the deserving will not solve the affordable housing crisis. Vancouver is one of the more unique instances in Canada of the dramatic increase in supply through high density housing on small parcels (57). This has had a negligible effect on restraining land costs in the city. Upzoning can also increase housing density as one finds in Montreal. Again, it seems to have restrained land costs for a bit, but the juggernaut now continues apace. Other measures, such as bans on house flipping or the purchase of real estate by foreigners have had little or no effect. Housing co-ops and non-profits in Vancouver as much as in Montreal have little chance of putting a dent in the affordable housing market. Indeed, in many cities, like Ottawa, substantially more affordable houses are coming off the market than new ones coming in. The ratio is thought to be as much as 30 to 1. Likewise, the current tremendous and projected growth in community land trusts across the country will only add yet another contributor to land price inflation.
Broken City offers a solution that is an integration of tax and planning policies, though the author is inclined to put his emphasis on the latter. This will undoubtedly create tension for advocates of one or the other. Since zoning laws and planning policies are not going to disappear from municipal jurisdictions and since property taxation will remain an ineliminable source of revenue for cities, it can only seem reasonable to try and make the two work in tandem, which is not the case at present. The current property tax system encourages the inflation of land costs as much as does much of current planning policy (see Peddle, Cities and Greed: Taxes, Inflation, and Land Speculation, 1994). Both can be significantly overhauled.
I will deal first with Condon’s proposed revolution in zoning and planning policy. Broken City has a chapter on the “Vienna model.” One does not normally think of Vienna as an inexpensive city. When it comes to housing an impressive 25 percent of its own residents live in publicly owned or rent controlled affordable housing, 24 percent in social housing, and another 18 percent in homes owned cooperatively (140, 143). This compares unfavorably with Vancouver with 15 percent of its housing being in the nonmarket category. The national average for Canada is closer to 5 per cent. These figures alone give you a sense of the scale of the problem. The author notes that Vancouver historically had done more to encourage nonmarket housing than any other metro area in North America, especially through “conditional zoning” and the capture of “land lift” for community amenities (180-1). An informative history of the implementation of Georgist ideas in British Columbia can be found in Using Power Well: Bob Williams and the Making of British Columbia (Williams, 2023).
The author has several takeaways from the analysis of Vienna as a real-world example, and indeed outlier, to solve the housing crisis. First, strict rent controls disincentivized the development of rental buildings, which effectively removed profit-seeking landlords from the urban land market (138). Vienna was then able to purchase buildable lots at greatly reduced prices and invest in affordable housing. Secondly, the city taxed private property and land more or less following the principles of Henry George (141). All this happened in the 1930s. Condon laments that there has been some movement away from these policies in recent decades. Nonetheless, average wages in Vienna are much closer to home prices than in any other first-tier European city (143). 65 percent of Vienna’s resident are shielded from housing precarity. The Vienna model is one of Condon’s primary inspirations for his basic thesis that it is possible to have a balance between a private market for urban land and a protected one (144).
Georgists, on the other hand, do not have any patience for allowing urban ground rents to stay in the hands of private interests. The latter will always, in their view, infringe upon a protected housing market, undermine its ability to maintain those protections, and continually offer blandishments to do so to city governments. The neoliberal histories of Vancouver and Vienna are good counter-examples to Condon’s thesis. Furthermore, Georgists would argue that a land value tax is market friendly. It restores developers to their true calling, building houses. It also relieves them of the stigma of being a “land speculator.” The application and incidence of a land value tax is universal. This in turn would remove some of the litigiousness and vitriol of the NIMBY versus YIMBY culture of urban life. Throughout Broken City there is a keen awareness of the difficulties of building the political coalitions necessary to implement any form of land value taxation. Though not mentioned in this book, one need only look at the current tortuous debates in Michigan about allowing Detroit to vote on a split-rate property tax that emphasizes land value taxation.
Broken City does not shy away from the Georgist paradigm. A 10 percent property tax on the land value of an urban taxable unit (a roll number) is proposed (153). All taxes on structures or capital improvements would be removed. This would have the overall effect of reducing land cost, which is the larger component of the purchase price of a house in most Canadian cities. A house would then truly become a house since you would only be buying the bricks and mortar. Chapter 8 of Broken City interprets “density bonusing” in Portland, Oregon, and the Affordable Housing Overlay in Cambridge, Massachusetts as in effect taxes on future land Rents. Condon points out that “adding density without requiring affordability” only leads to more land-price inflation (190). J.S. Mill proposed the same strategy in his Principles of Political Economy (1848). Cynical right-wing historians would point out that this is the same year Karl Marx produced The Communist Manifesto. Henry George was often accused of being a socialist and a land nationalist, while Marx called him the last bastion of free-booting capitalism. You must be saying something right when attacked by both sides.
Some Predictable Predictions
Followers of Henry George have a theory of eighteen-year real estate cycles. They accurately predicted the Great Recession of 2008 (Foldvary, 1997). The next great real estate collapse will be in 2026 on this theory. The downward spiral of the eighteen-year cycle is always preceded by a run up in land costs and speculation as well as a significant expansion of the money supply. It is doubtful whether incremental change in local zoning regulations can do much to stymie tectonic shifts in global real estate cycles. Henry George lived through the great industrial fluctuations of the latter half of the nineteenth century. He did not think such things were naturally occurring business cycles. His “sovereign remedy” was designed to put an end to and prevent such widespread economic catastrophes. Half measures, such as easing restrictions on mortgage lenders and insurance companies and releasing some underutilized federal lands, announced by the Canadian government on October 8, 2024, have been ineffective and will continue to be predictably so.
Broken City is certainly a tale of unhappy urban pathologies. Perhaps one of the more woeful consequences of the great deception about urban land prices is how it has inhibited research agendas in the economics and urban planning professions. The history of neo-classical economics has made this inevitable for the simple reason that there is no such thing as land or surface space for this intellectual temperament, be it urban or rural, developed or undeveloped. For the neo-classical economist land is a tradable commodity, with a determinable market price, no different from any other productive input.
One gets the impression, however, that Condon is an optimist and that it is possible to undo the predictably predictable. Many urban planners are aware of the impediments to carrying out their designs and aspirations, but are professionally constrained in one way or another from incorporating tax reforms and fiscal adjustments into their official plans. Broken City, though it leans towards realistic city-wide zoning approaches to combat the immediate crisis in housing and to restrain the seemingly inexorable rise in urban land prices, nonetheless makes a strong argument for an alliance between planners and property tax reformers at the municipal and provincial levels. This is important because many social justice advocates steer clear of tax reform as too difficult and too politically fraught. Making their chosen cause dependent on the attainment of tax justice is a bridge too far. Broken City argues that this is a mistake. Only by integrating tax equity with well crafted regulatory measures will the housing crisis be ameliorated.
Dr. Francis K. Peddle is Professor Emeritus of Philosophy at the Dominican University College; Secretary-Treasurer of the Henry George Foundation of Canada; Past-President of the Robert Schalkenbach Foundation; Co-editor and contributor of The Annotated Works of Henry George, six volumes; and advisor to Common Wealth Canada.
Purchase Broken City: Land Speculation. Inequality, and Urban Crisis by Patrick Condon (UBC Press).
