NCPA - National Center for Policy Analysis


December 13, 2005

Since 1970, Washington, D.C., and other coastal cities where housing prices have exploded have seen "a significant increase in the ability of residents to block new projects," transforming vast swaths of the cities into "homeowners' cooperatives" that are no longer open to growth, says economist Edward L. Glaeser.

The explosion in house prices ironically has occurred in areas where the price of housing was already high, making homeownership increasingly unaffordable. Meanwhile the cost of housing remained reasonable and affordable throughout the vast interior of the country. Consider:

  • Before 1970, when most existing houses were built, home prices in Washington and the rest of the country mostly reflected the cost of acquiring land and building on it.
  • Now, construction costs represent half or less of a new or existing home's price in high-cost cities, Glaeser and his colleagues found.

The increasing power of homeowners to block construction, forcing buyers to bid up the prices on the few homes available, is only partly a result of steady growth in the portion of the population that owns homes, which now stands at a record high near 70 percent.

It also is a result of the increasing willingness of homeowners to use that status through political activism and the courts to maintain low density, green spaces and other amenities in their neighborhoods, at the expense of newcomers, the researchers found.

The resulting shortage of housing causes an escalation of prices as new residents and renters seeking to become homeowners bid up prices to purchase the few homes available. That further serves the interests of the homeowners by pushing up the value of their houses, says Glaeser.

Source: Patrice Hill, "Limits on homes push up prices," Washington Times, December 12, 2005; and Edward L. Glaeser, Joseph Gyourko, Raven Saks, "Why Have Housing Prices Gone Up?" National Bureau of Economic Research, Working Paper No. 11129, February 2005.

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