NCPA - National Center for Policy Analysis


August 1, 2006

Despite record-setting home prices, the nation as a whole has no real shortage of affordable housing.  It's just that the cost of land and homes in certain areas has gone through the roof, mainly because zoning and other land use restrictions have made usable land scarcer, says Joel Miller in Reason magazine.

Economist Edward L. Glaeser and Wharton real estate and finance professor Joseph Gyourko explored the problem in a paper prepared for the Federal Reserve Bank of New York.  Examining 45 metropolitan areas around the country, they found that:

  • In the areas where zoning is strict and approvals are slow, the prices goe up considerably.
  • Permit lags of six months can add nearly $7 per square foot to the price of a house.
  • That's more than $10,000 added to the cost of a 1,500-square-foot home -- double that for a 12-month lag.

It's not just zoning and growth restrictions, says Miller.  Environmental impact laws raise the purchase price of homes as well.  A February 2005 study by the U.S. Department of Housing and Urban Development identified complex environmental regulations as one of the factors raising home prices, including:

  • The proliferation of national mandates.
  • The increasing complexity of urban environmental regulations.
  • Layering of additional local environmental laws.
  • The misuse of environmental regulations by those opposed to affordable housing.
  • Impact fees such as park, wetland, transportation mitigation expenses, cost of permits and utility hookups.

Unfortunately, says Miller, some cities are trying to solve the problem they helped create through more misguided regulations.  Regulators and special interests can focus on enacting rules that have specific, narrow benefits for one particular group or another.  But ultimately regulations are like pharmaceuticals, he continues, even the beneficial ones have side effects.

Source: Joel Miller, "The Politics of Sky-High House Prices," Reason, July 2006


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