Only a few days ago we highlighted the Transition Town movement towards smart urban growth. Since then The Heritage Foundation has released an extremely interesting article which tackles the idea that over regulation towards smart growth may have spawned a good portion of the current crises. The article suggests that current housing policies are broken, and may in fact slow our overall economic recovery.
It seems logical to centralize growth and build localized transit systems that can cater to a world needing to reduce energy consumption. These issues have become evident in local land use regulations nationwide, and we are beginning to see similar policies take shape on the federal level as well. In February President Obama said “The days where we’re just building sprawl forever, those days are over. I think that Republicans, Democrats, everybody recognizes that that’s not a smart way to design communities”. Presumably these would be the central policies to reduce demand on infrastructure, energy consumption, and over-inflation of property value.
The article suggests that studies invariably highlight that land use restrictions decrease supply of a basic commodity. A declining amount useable land then means that housing prices are forced to rise disproportionately. Among areas in which growth is most heavily managed at state and local levels we find California, Florida, Nevada, and Arizona. These areas, highlighted in a Brookings Institution Metropolitan Policy Foundation study, held the heaviest burdens in the housing crises. A wise homeowner knows they should never become leveraged into a property that is priced more than three times their annual income. From the early 90’s forward however, we began to see families take on mortgages that may have been ten times their annual income. They didn’t do this out of pure recklessness, but because the market mandated they take on more debt than was reasonable.
In 2005 I remember seeing a sign for new condo’s in the D.C. metro area which announced “New Homes From the $700’s”. Being from Fort Worth, and used to numbers more like “from the $120’s”, I couldn’t believe what I was seeing. And in fact, our markets have remained relatively stable because of a lack of general land use regulation. The Brookings Institution study named the category for those areas with the least regulation “Wild Wild Texas”. This category mentions almost every major metropolitan area in Texas.
The numbers simply speak for themselves. Foreclosures and delinquencies are highest among those regions with more stringent land use regulations and resulting price inflation. What we end up with in situations like this are substantial monetary losses at the institutional level; all of which were based on false or inflated initial valuations. Unfortunately the Proposed Homeowner Affordability and Stability Plan will reward more restrictive areas with a greater share of federal subsidies.
A PDF version of The Heritage Foundation Study can be found here.
March 30th, 2009 at
[...] was only earlier this month that I wrote about the counteractive effects that initiatives like these have on overall housing prices. Take for example the idea requiring [...]
March 31st, 2009 at
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