zoning as a cause of the recession
Topics: Housing
13 May 2009
From: Ervan Darnell
The largest drops in housing prices have been in areas with the most stringent land use controls [1][2] (I'm mostly repeating an analysis made in [2]). That's because those land use controls drove housing beyond its production cost and into scarcity pricing, which forced people to spend more of their incomes to get housing, thus being more inclined to take risky loans to make it possible at all. For instance, in San Francisco, the regulatory burden cost of building on 1/4 acre is $600K [3]. Independent of that, it caused housing prices to be speculative rather than productive, leading to a speculative bubble, further encouraging speculation in the form of ARMs and low down payments.
One price control always leads to the next. In this case we have local jurisdictions imposing housing price controls, which led to the bubble, which led to the recession, which led to Obama getting elected. And, now, he want to impose more price controls on the housing industry ("cram downs" as one example). What a painful irony how that first mistake just multiplies the pain.
Thanks to Thomas for pointing these articles out to me.
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[1] http://www.zillow.com/reports/RealEstateMarketReports.htm?s_cid=emm-2007125BuzzQ4ReportConNoClaim-bab, Zillow is reputable real estate reporting service. Their map shows California, Florida, and Boston taking a big hit. Meanwhile Texas is unscathed.
[2] "The Dog That Didn't Bark" by Randal O'Toole, September, 2008, Liberty. This article is not available online, but some summary of the position can be found at:
http://www.catostore.org/index.asp?fa=ProductDetails&method=&pid=1441366
[3] http://www.theatlantic.com/doc/200711/housing, subtracting the cost of 1/4 acre with permit to build minus the cost of an incremental 1/4 acre without a permit to build. This is a good article in its own right.
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