The Antiplanner recently listed more than half a dozen academic papers that concluded that growth management makes housing more expensive. To this number might be added a paper (really a lengthy blog post with some neat graphics) by economist Issi Romem, who works for the real-estate web site BuildZoom. Romem finds that urban areas with unaffordable housing haven’t expanded geographically to match their population growth, while areas that have expanded geographically remain affordable.
An article in the Wall Street Journal breathlessly reports this as news, when it is only news to those who have drunk the kool-aide of urban planning. The writer of the article, Laura Kusisto, has apparently listened to too many urban planners herself, for she reports that urban “sprawl” has a “tendency to lead to oversupply that can lead home prices to crash.”
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This is completely wrong; the cities that Romem reports have grown geographically did not bubble and crash in the 2000s. Instead, the urban areas that saw housing prices crash are the ones that tried to contain sprawl. Too bad the WSJ can’t afford to hire reporters who understand a smattering of economics, such as the fact that restricting supply makes a good inelastic which in turn makes its price more volatile.
As much as I just flat-out loved playing SimCity (the original) I was always bothered that it didn’t represent real-life and may be indoctrinating the casual user with false planning precepts. I never expended much more thought until now when I realized the game was the ultimate “Growth Boundary” game. There was no expanding that city!
The writer of the article, Laura Kusisto, has apparently listened to too many urban planners herself, for she reports that urban “sprawl” has a “tendency to lead to oversupply that can lead home prices to crash.
Wow, that’s a new one. I’ve heard planners casually claim that sprawl is responsible for a variety adverse outcomes, from traffic congestion to obesity, air pollution, segregation, loss of prime farmland and lack of community cohesion (largely without evidence). But this is the first time I’ve heard someone claim it is also responsible for housing crashes.
I can see where someone might make a superficial argument to that effect (assuming they just don’t know any better) by pointing to cities like Las Vegas and Phoenix during the last recession. But there’s really no causal link to urban form that can explain those outcomes, and there are far more “sprawled” cities around the country that didn’t experience severe crashes in housing prices and which don’t fit this pattern.
“the cities that Romem reports have grown geographically did not bubble and crash in the 2000s.”
KC is on the list at #26; it grew geographically and housing prices fell by 40% after the housing bubble burst in 2009.
Are you telling me that a 40% drop in value is not a the result of a bubble and crash?
By stating: “… that urban “sprawl” has a “tendency to lead to oversupply that can lead home prices to crash.”, the reporter is thus taking the position that the government should deliberately restrict the supply of housing to increase the value or cost of the existing housing stock.
Not very good for the poor in general; very bad for the poor who want to buy their first house. But all of the government planners (with a straight face) will claim that their restrictive housing policies are created to help the poor. Of course.
KC is on the list at #26; it grew geographically and housing prices fell by 40% after the housing bubble burst in 2009.
Are you telling me that a 40% drop in value is not a the result of a bubble and crash?l
Here is a report from the KC Regional Association of Realtors. It contains price trends for all of the constituent counties of the KC metropolitan region going back to January 2006. Good luck finding a county for which a 40% decline in prices was reported.
MJ,
I’m looking at median home values in KC city limits; comparing values in the core to the agrarian fringes produces a much different trend. KC might be an example of how sprawl decreases average home values in a metro area, but the city limits (core) are still more expense and has wilder price fluctuations. In a place like KC, that can’t be blamed on UGBs.
The 40% comes from Zillow’s median home value.
The urban growth boundary only works if you allow growth to take place within its limits. But it’s become almost impossible to add housing in a place like Los Angeles, which can only grow by growing upwards. Same in the Bay Area. If you eliminated the artificial growth boundary caused by NIMBY residents, then housing prices should go down.
In any case, while it would be straightforward to build new subdivisions in the farmland surrounding Portland, OR, nobody has ever told me where we should have some greenfield housing in Los Angeles. Griffith or Elysian Park? Mount Baldy?
Frank,
I don’t think we’re comparing apples to apples here. The Zillow data you linked to only covered the city of Kansas City, MO, rather than the entire region/housing market.
It may well have been that Kansas City had a larger number of foreclosures than the region as a whole, causing prices to decline more steeply there than elsewhere in the region. If there were an effect related to land supply (e.g. “sprawl”) then it should be systematic and region-wide.
“I don’t think we’re comparing apples to apples here. The Zillow data you linked to only covered the city of Kansas City, MO, rather than the entire region/housing market.”
Right. I said that. You can’t compare places like the Plaza with the western fringe of Olathe Where people live in an acre or two and have horses and chickens. Lumping the entire region together hides volitility in the metro center/city limits.
I maintain that volatility and hosting bubbles are largely due to monetary policy, not UGBs. That explains why the KC proper housing market experienced a much larger correction than the suburbs and exurbs.
The same can be seen in Seattle where money is dumped into the core and north of downtown, and places like Spanaway, Buckley, and Auburn weren’t as affected during the correction and haven’t seen their values soar as rapidly since.
“Not very good for the poor in general; very bad for the poor who want to buy their first house. But all of the government planners (with a straight face) will claim that their restrictive housing policies are created to help the poor. Of course.”
~John1000
Even worse, it’s not an increase in wealth. It’s not real wealth. The few beneficiaries are those able to find someone to trade actual money for their house at those inflated rates.
But that act, the sale, means that resources that would’ve been used elsewhere for something useful get used on something that is a consumer good. It’s consumed and used up. Society as a whole do not become more wealthy.
Exactly. My central Denver neighborhood went from affordable in 1990 to expensive in 2005 to outrageous today. As a result, except for a few old-timers, only rich people can afford to live here now. Doctors, lawyers, government bureaucrats. It used to be a neighborhood with a nice mix of incomes, races, and ages. Now it’s homogeneous and boring and oh so politically korrect.
“Exactly. My central Denver neighborhood went from affordable in 1990 to expensive in 2005 to outrageous today.”
How affordable was it really in 1995 when 30-year mortgage rates were more than nine percent?
Run the numbers:
$60,000, 9.5%, thirty-year mortgage in 1990 yielded a mortgage (only) payment of $505/month, or $920 in today’s dollars.
$500,000, 3.75%, thirty-year mortgage today yields a mortgage (only) payment of $2316/month.
The 1990 numbers were actual, the $500k figure is based on latest property tax assessment.
Real estate is two-and-a-half times as expensive now compared to 26 years ago. Young people are screwed in Denver.