President Bush’s 2009 budget includes a proposal to spend hundreds of millions of dollars on programs aimed at helping people avoid foreclosure on their homes. Although the programs are small and won’t help many of the people who are in trouble, any help at all sends the wrong signal: that you can borrow beyond your means and the feds will bail you out when you get in trouble.
But, as the Antiplanner has noted before, the real reason why many people bought houses that were more expensive than they could afford was that state and local land-use rules had driven up housing prices. So Heritage Foundation scholar Ron Utt has an idea: make mortgage relief conditional on deregulation of land use.
“In effect, the President is proposing to substantially expand the scope and intrusion of the federal government into the nation’s mortgage market for no other reason than to accommodate the home price inflation induced by decades of property rights abuses,” says Utt in a issue brief released yesterday. “A better solution would be to link the availability of any concessions in federal mortgage programs with substantive deregulation of land use practices in high-cost areas.”
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In other words, mortgage relief not only rewards people who borrow beyond their means, it rewards the state and local governments that created much of the problem in the first place. Even if it is politically necessary to provide such relief to help homeowners, it should be shaped to give state and local governments incentives to fix their role in the problem.
It sounds like a great idea. Unfortunately, given the religious nature of the issue — that is, given that advocates of land-use regulation seem to be resistant to all facts about the effects of their policies — it will be pretty difficult to put such an idea into effect.
Maybe instead we can form an alliance with the smart-growth advocates, who are always saying that FHA loans are the reason for the suburbs, and just shut down the Department of Housing and Urban Development once and for all. That should make everybody happy.
the real reason why many people bought houses that were more expensive than they could afford was that state and local land-use rules had driven up housing prices
From an article in Forbes Magazine on “America’s Hardest-Hit Foreclosure Spots”. The top 10:
1. Wayne County (Detroit)
2. Clark County (Las Vegas)
3. Maricopa County (Phoenix)
4. Riverside County, CA
5. Los Angeles County
6. Cook County (Chicago)
7. Broward County, FL
8. Sacramento County
9. Miami-Dade County
10. San Bernardino
All hot beds of land use regulation and “Smart Growth”, to be sure. Where are all the Oregon counties…?
http://tinyurl.com/3c6bay
But, as the Antiplanner has noted before, the real reason why many people bought houses that were more expensive than they could afford was that state and local land-use rules had driven up housing prices.
And has Dan has noted every time you made this claim, you have no empirical evidence for your claims. Still waiting, Randal, for your equations separating rent increases in equilibrium and from land use controls. I’m sure you are still working on them & will produce them soon.
DS
you have no empirical evidence for your claims
Yes, after a couple of posts by the AntiPlanner, it becomes obvious that he chooses not to ‘waste’ his time with silly things like ‘evidence’ and ‘rigorous emprirical research.’ Hey the planners supposedly run a pseudoscience, so why should should the Antiplanner bother engaging in science. Then again, the research is a hell of a lot better coming from planners and those darn plannner apologists like the Brookings Institution than randal’s Cato articles. Its so much easier to throw out a couple of numbers and figures that support your view and fluff off any numbers that dont support your view.
What exactly are you looking for Dan? Sounds like you’re asking for a full out economics study. Not exactly the sort of thing most any blog is going to produce.
“But, as the Antiplanner has noted before, the real reason why many people bought houses that were more expensive than they could afford was that state and local land-use rules had driven up housing prices.”
No, the real reason was over-confidence by lenders and borrowers, together with a loan structure which had very low introductory rates. The lender was hoping that, if it all went pear-shaped, they could cream off the excess value of the house, and the borrower hoped that they could find some way of finessing the interest rates in force after the introductory period.
The lenders were further protected by distributing the risk of the loans amongst the financial industry. These loans are now booby-trapped, since the abstraction of the loans means that nobody has any idea what any bank holds. This has caused problems in the financial markets, and has derailed a British Bank called Northern Rock.
Some houses, for a given floor area cost more in some areas than in others, and this may be down to the level of planning controls. However, most people don’t need a big house, and the price of the average house in an area, like in the UK, is a function of earnings, interest rates, and market sentiment. That’s free-market capitalism.
By the way, the houses that Antiplanner describes as too small, are still bigger than mine.
A lot of finger pointing at specific targets. I have a reasonable hypothesis, there’s blame to go around.
Restrictive land use rules have driven up the price of land. High priced lots means builders build larger, more expensive homes. Higher overall market prices drives up even the older, smaller home prices. Buyers know home ownership is the key to long term financial security and accept higher risk to get in the game. Real estate sales people push buyers promising rapid appreciation and prices that won’t last long. Mortgage brokers and financial institutions relax credit and induce unqualified buyers with low cost adjustable loans hoping to recoup the profit later. Fears of recession (not an actual recession yet) bring the whole house of cards tumbling down. Ta da!
I almost forgot. In some of the markets most highly impacted government threats to loan to unqualified buyers (redlining) or else causes poor quality loans to be made. There’s blame for just about everybody.
The top ten list shared by D4P shows California (heavy land use regulation) and poor urban areas (Detroit, Chicago and Miami) leaving only Las Vegas and Phoenix as somewhat unexplained. Of course they could be a combination of the reasons plus a little bit of speculative greed.
So it appears everyone who offered explanations was right to a degree. I think Randal was especially right since his hypothesis lays blame where the problem was rooted with many of the other failures avoidable but for the government interference.
I personally believe the government should do something to remedy the problem but it should also do something to make sure it doesn’t happen again. States should loosen land restrictions to drive the price of lots down. The Feds should stop making lenders accomodate those who don’t qualify, especially in crappy neighborhoods. Cities and counties should learn to accept growth as an inevitable occurrence and stop the nonsense of trying to stop it, control it, or over manage it like some smart growth policies do.
The lessons are there to be learned if we will open our eyes and learn them.
What exactly are you looking for Dan? Sounds like you’re asking for a full out economics study.
I’m looking for evidence to back the claim. It is at odds with full-out economics studies in the literature.
DS
The land surrounding Las Vegas is owned by the US Govt. creating an artificial shortage. I don’t know much about Phoenix.
Economic Study
http://www.independent.org/newsroom/news_detail.asp?newsID=94
Inclusionary requirements reduce the number of homes built and increase home prices. When the supply of homes or land is reduced prices increase. Many will not agree with this.
AP:
I don’t have problem with the premise that restrictive planning rules increase building costs (see Quigley or this simplified version of Glaeser. It doesn’t follow that such regulation was the sufficient cause of the so-called subprime mortgage meltdown. Wall Street and the Fed were quite capable of creating that problem without the help of the APA.
As for which cities will ultimately suffer the most, recessions and deflating RE bubbles move from the outside in. Despite the opinions of their respective Board of Realtors, neither New York City nor San Francisco will be immune.
RE no. 9:
“Inclusionary” housing requirements, as practiced in NYC and SF, are designed to keep prices high, while giving the appearance of the opposite. Funny story about the terror felt in the hearts of the wealthy, priviliged, and progressive residents of Marin, CA at the prospect of four single-family homes in their planning-protected and Prop 13’d paradise: Habitat for Humanity must be stopped!
Inclusionary requirements reduce the number of homes built and increase home prices. When the supply of homes or land is reduced prices increase. Many will not agree with this.
Only over small scales (viz. fig 4). Somewhere I have a good linkable .jpg that details all that goes into housing prices, can’t seem to find it at the moment. In the meantime, I stand by what I have said over a dozen times here & supplied copious references for: supply-demand arguments are too simplistic, and we neglect that homeowners themselves inadvertently drive up housing prices through their wish to preserve their property values.
DS
homeowners themselves inadvertently drive up housing prices through their wish to preserve their property values
That certainly seems to be the case in Marin County in Unowho’s link. It certainly doesnt represent smart growth* principles.
*For some people (especially Randal who did not seem to differentiate these at all in his “Ultimate Road Planning Book”) I would like to note that Smart Growth policies do not = No Growth policies. They are not the same thing and ignoring this makes your arguments much weaker and less valid. New Urbanism is (in part) a reaction to the NIMBY’s who live in their suburban dream home, but do not want their piece of nature next door to be turned into another subdivision. Thus, in some small part they recognize that their ‘little piece of heaven’ is closer to a little piece of sh*t!
“That certainly seems to be the case in Marin County in Unowho’s link. It certainly doesnt represent smart growth* principles.”
Actually, inclusionary zoning is part of the smart growth “toolkit.†The article describes a perfect example of its practitioners being hoist by their own petard.
The so-called “new urbanism†is the intellectually arrogant bobo version of suburban NIMBYism. To paraphrase John Tierney, the former enshrines its proponent’s taste as public policy, a conceit absent from the latter.
Actually, inclusionary zoning is part of the smart growth “toolkit.â€Â
I was implying that the behaviour of the NIMBY property owners did not represent smart growth, and yes inclusionary zoning is an important aspect of smart growth. Its the homeowners associatins and their restrictive covenants (and those who wish they had one) that screw over low income people, not smart growth planners.
The so-called “new urbanism†is the intellectually arrogant bobo version of suburban NIMBYism.
Some can choose a boring suburb where one has to drive to everything. Good for them. I hope they feel very American and free to stay there – yay Murrica!
The folks who figured out that it’s…um…intelligent to not have to drive to every d*mn thing will take the opportunity of the expanding market for decent neighborhoods, thanks, nonbobos.
DS