NCPA - National Center for Policy Analysis


May 30, 2006

The San Francisco Bay Area is one of the most expensive housing markets in the nation, but as recently as the 1970s, Bay Area housing was as affordable as many other parts of the country, says Randal O'Toole, director of the American Dream Coalition.

So, what happened to make Bay Area housing so unaffordable? In a nutshell: land-use planning, says O'Toole. These restrictions included urban-growth boundaries, purchases of regional parks and open spaces and various limits on building permits. These regulations created artificial land shortages that drove housing prices to extreme levels:

  • Today, residents of Houston, Texas, can buy a brand-new four-bedroom, two-and-one-half bath home on a quarter-acre lot for less than $160,000, but that same house would cost more than five times as much in Marin or Contra Costa counties, seven times as much in Alameda County, and eight to nine times as much in Santa Clara, San Mateo or San Francisco counties.
  • In fact, planning-induced housing shortages added $30 billion to the cost of homes that Bay Area homebuyers purchased in 2005.

Moreover, the impacts of high housing prices are reverberating throughout the region's economy, says O'Toole:

  • Economic growth has slowed as businesses look elsewhere to locate offices and factories.
  • High housing costs have also increased prices for food and other consumer goods; retailers now pay $1 million per acre or more for store locations.
  • They also force many commuters to live farther away from their jobs, forcing more cars onto the roads.

A possible solution to the housing affordability crisis is not a few units of affordable housing, but widespread land-use deregulation that will make housing more affordable for everyone, says O'Toole.

Source: Randal O'Toole, "The high price of land-use planning," San Francisco Chronicle, May 22, 2006.

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