Housing Crash and Smart Growth
September 18, 2015
Relaxed lending practices, which allowed people to buy homes they could not afford, led to the creation of a housing-price bubble prior to 2007. However, the subsequent housing crisis marked by falling prices was not uniform and varied substantially by geography, says David Grantham, senior research fellow and Joshua Latshaw, research associate at the National Center for Policy Analysis.
A careful analysis shows that areas with restrictive land use regulations suffered the most after the home-price bubble burst. Some of these regulations apply to specific metropolitan areas, but some are statewide.
The housing supply in locales with land use restrictions could not respond to the increased demand for homeownership caused by the greater availability of mortgage credit.
- As a consequence prices rose, which encouraged speculation and increased house prices even more.
- As demand increased, the market value of the existing stock of houses more than doubled from $10.4 trillion in 1999 to $22.7 trillion by 2006.
- About 94% of the cumulative losses in home price values were in restrictively-regulated land markets.
- The average loss in valued in highly-regulated areas of the country was $97,000, versus an average loss of $12,000 in less-regulated places.
Local governments in Hawaii, California, Oregon, Vermont, Florida and Washington, which had some type restrictive land-use policy in place, experienced some of the largest losses. By contrast, less-regulated markets, like Atlanta, Dallas-Fort Worth, Houston, Indianapolis and Raleigh-Durham experienced smaller declines.
So far, Florida has been the only restrictive land-use state that has significantly changed its growth management policies, including loosening restrictions on construction.
Nevertheless, it appears like a new housing bubble is forming; since early 2012 median home prices have risen 35% and home sales have jumped nearly 30%.
Source: David Grantham and Joshua Latshaw. "Housing Crash and Smart Growth," National Center for Policy Analysis, September 2015.
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