Urban-growth boundaries and other forms of growth management make housing expensive, housing prices volatile, and particularly harm low-income people. They slow regional growth, are a primary if not the primary cause of wealth inequality, and cost the nation nearly $2 trillion a year in economic productivity. These and other problems are documented in a new paper that the Cato Institute will publish tomorrow. Antiplanner readers can get a preview of the paper today.
Titled The New Feudalism, the paper points out, as the Antiplanner has previously noted, that strict government control of land uses resembles feudalism in every way but whose names are on the land titles. You may own land in California, but your ability to use that land the way you see fit can be restricted just as heavily as faced by occupants of land in Africa or other places where the government or a few oligarchs hold title to most land.
The paper also argues that regions that practice strict growth management aren’t going to solve their housing affordability problems by building to higher densities. Higher land costs, higher construction costs (at least for mid-rise and high-rise housing), and higher permitting costs can all add hundreds of thousands of dollars to the cost of a single housing unit.
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According to Zillow, the total value of housing in the United States was roughly $28 trillion at the end of last year. It is closer to $30 trillion today. Well over two-thirds of that is ascribable to owner-occupied housing. The 2008 crash reduced homeowner equity by about $7 trillion; if a crash took place now, it would cost homeowners at least $5 trillion, mostly in California. A crash is going to take place, but this year–unlike 2008–it will probably wait until after the election.
For a balanced discussion of the housing affordability problem, Cato will hold a policy forum on November 29 featuring Emily Hamilton of the Mercatus Center, Garrit Knaap of the National Center for Smart Growth Research, and the Antiplanner. The noon forum will take place at Cato’s offices in Washington, DC. If you can attend, be sure to pre-register; if you can’t be there, you can watch it on line at Cato Live.
I’m sure this paper will name ZIRP and monetary policy as the primary driver of the housing bubble. /sarc
Such factors won’t even be mentioned since The Antiplanner insists on growth boundaries being the Great Satan in housing price escalation. Can’t let reality interfere with a religious apologia, you know.
It’s strange that many urban planners and other people don’t understand this simple concept on how UGBs increase the price of land. It’s simple supply & demand. Although many don’t understand that either. When supply is constrained, prices increase. Often, demand decreases, but housing is a need (not a want).
Of course, there are many other factors holding back on supply. Some of the zoning restrictions result from selfishness (usually by those on the left) to slow growth (NIMBY).
So, many citizens leave the highly growth restrictive areas and relocate to lower priced housing areas. For example, since about 2000, for California, the net domestic migration has been negative. In other words, more citizens have moved from CA to another state than into CA. Also, the population of CA has only increased at the same rate as the nation, which is due to immigration. Whereas, prior to 2000, CA’s population had always increased at a higher rate than nationally.
And when you have a flood of people entering cities like Seattle, they’re able, thanks to ZIRP, to bid up prices. Demand + ZIRP = the majority of the cause of the housing bubble. If UGBs were the primary driver, the only way housing prices would decrease would be if those restrictions were relaxed or eliminated. The precipitous decline in housing across the nation during the recession, particularly in places like Seattle and Portland, show the claim that UGBs are the primary driver of prices to be complete bunk.
If ZIRP and monetary policy caused housing bubbles, you would see them everywhere in the U.S. It seems quite a coincidence that instead you only see them where something is constraining land supply. It is possible that low interest rates could make the bubbles a little worse than they would be otherwise, but this is California’s fourth bubble, and none of the previous ones had zero interest rates.
“If ZIRP and monetary policy caused housing bubbles, you would see them everywhere in the U.S.”
Please support this assertion.
New money is going to hot markets where demand is high.
“It seems quite a coincidence that instead you only see them where something is constraining land supply.”
Correlation doesn’t imply causation.
“It is possible that low interest rates could make the bubbles a little worse than they would be otherwise”
According to the Austrian School, it is precisely the low interest rates that are causing the malinvestment. This is nothing new. It’s been going on since the Fed caused the Great Depression with its easy monetary policy.
“but this is California’s fourth bubble, and none of the previous ones had zero interest rates.”
No, but they had relatively low interest rates and malinvestment. The dot com bubble was due in large part to abundant credit and resulting malinvestment.
Do not forget that economist Frederick Hayek won the Nobel prize in part for his work on the Austrian business cycle theory. You may want to check it out. It makes a lot of sense.
Thanks.