NCPA - National Center for Policy Analysis

WHY DO HOUSES COST SO MUCH?

February 17, 2006

Urban planning is generating the rapid increase in house prices, says Randal O' Toole of the Liberty Foundation.

Throughout the United States, home prices rise fastest where urban planners impose rules aimed at slowing or controlling growth. Homebuilders cannot meet consumer demand for housing, and thus prices rise, says Toole.

Consider:

  • The artificial value of downtown Tokyo once skyrocketed higher than all the private real estate in the United States.
  • While an acre of land costs $20,000 in Houston, an acre costs several million dollars in San Jose County.
  • Between 1989 and 1994, many Californian homeowners lost 15 to 25 percent of their home value.
  • During the 1990s, prices grew about 3 to 4 percent per year in unrestricted cities, but prices increased faster than 7 percent per year in restricted cities.

Urban planning makes the value of a house appear much higher than it really is, says Toole. But eventually, house prices deflate, consumer spending declines, banks falter and economic growth slows or stops.

Avoiding restrictions on homebuilders will keep house prices at the actual value, says Toole.

Source: Randal O' Toole, "Why Do Houses Cost So Much?" Liberty, no. 20, February, 2006.

 

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