NCPA - National Center for Policy Analysis

SMART GROWTH ABUSES

March 16, 2007

The Federal Reserve's effort to deter inflation by raising interest rates has had the expected effect of slowing the economy slightly and the homebuilding market substantially. While falling home prices will make housing more affordable to some, restrictive federal macroeconomic policies are a clumsy and counterproductive way to promote homeownership, say researchers Wendell Cox and Ronald D. Utt, both with the Heritage Foundation.

A better solution is to attack restrictive land-use regulations (restrictive zoning provisions, impact fees, mandatory amenities, design features, etc.) and increase the supply of building lots.  Currently, housing affordability problems are concentrated in regions where anti-growth land use regulations have limited the supply of building lots:

  • Of the 22 least affordable markets, 20 are in California, where restrictive land-use practices have been common since the 1970s.
  • High-cost housing encourages businesses and households to move elsewhere and undermines the regional economy.
  • The solution is to attack the root cause of the affordability problem -- restrictive land-use regulations -- and increase the supply of building lots. Efforts to turn back such regulations are underway in a number of communities.

If restrictive land use regulations were reformed, home prices in now-unaffordable regions like Los Angeles, Washington, New York City and Miami would begin to return to affordable levels, say Cox and Utt.  The overly regulated metropolitan areas seem likely to experience considerably less population and economic growth in the future than they would if their land-use policies had not broken the historic relationship between house values and household incomes.

In the meantime, affordable metropolitan areas that have not grown as strongly in recent decades face a unique opportunity for renewal and expansion, say Cox and Utt.  Such areas, many in the long dormant Midwest, will need to avoid the siren song of excessive land regulation to take advantage of this potential.

Source: Wendell Cox and Ronald D. Utt, "Housing Affordability: Smart Growth Abuses Are Creating a "Rent Belt" of High-Cost Areas," Backgrounder No. 1999, Heritage Foundation, January 22, 2007.

 

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