Easy credit fanned the flames of the recent housing bubble, but
the bubble was first inflated by anti-sprawl plans that created
artificial housing shortages in many American markets. If planning
laws hadn’t boosted median housing prices to several times median
family incomes, few homebuyers would have had to resort to
sub-prime mortgages.
As I write in a paper published today, the housing bubble really
only affected a dozen states. In the remaining states, increases in
housing prices were relatively modest. While housing prices grew by
more than 130 percent in California and Florida from 2000 to 2006,
prices in Texas grew by only 30 percent. With few exceptions, the
states that saw the biggest bubbles were ones that had passed
growth-management planning laws. And with one exception, every
state that has passed such a law also saw a housing bubble.
The exceptions were New York and Nevada (where prices grew
without a growth-management law) and Tennessee (where prices didn’t
grow, in spite of a 1998 growth-management act). New York prices
only grew in the New York City area, which is surrounded by states
and suburbs that have growth-management laws and plans. Nevada
prices grew because Las Vegas has literally run out of private
land; it is surrounded by federal land and federal land sales have
not kept up with growth. Tennessee’s prices haven’t grown because
regional growth-management plans included lots of vacant land in
their urban-growth boundaries, so there is, as yet, no
shortage.
Americans want to live in single-family homes. Anti-sprawl
restrictions increase the price of such housing. But people will go
to great lengths to achieve the American dream of home ownership,
including bidding up the price of scarce housing and taking out
various sorts of sub-prime mortgages to pay for that housing.
Anti-sprawl plans effectively imposed a $250 billion tax on
homebuyers in 2006. Nearly 93 percent of that tax affected only 11
states, all of which (except New York) have growth-management
planning laws of one sort or another.
The lessons should be clear: If more states pass
growth-management laws, the next bubble will have even more
detrimental effects on our economy. Instead, states that have
passed such laws should begin to repeal them. Cities that have
written growth-management plans should expand or eliminate their
urban-growth boundaries, eliminate impact fees, reduce the time and
red tape required to get subdivision and building permits, and
remove other planning obstacles that prevent home builders from
meeting the demand for housing.
A key finding of the Cato report is that anti-sprawl planning is
driven by municipal finance. If developers can subdivide and build
on land in rural areas, cities have to offer low-cost,
growth-friendly environments in order to attract development (and
the resulting tax revenues) within their borders. But if cities can
prevent development outside their borders, they have no incentive
to maintain growth-friendly policies, and so they will hike impact
fees and take other actions that make housing unaffordable.
Thus, housing prices increase when cities use growth-management
planning or other tools to get control of the rural areas that
surround them.
Some writers have speculated that regional governments can keep
housing affordable, but because they are likely to be controlled by
their largest cities, they practically insure that housing becomes
unaffordable.
Of course, existing homeowners benefit when housing prices rise.
But the costs to society as a whole are much greater than these
benefits. First, many homes sold each year are new, and no one
benefits from artificially high prices for them. Second, not all
existing homeowners benefit: those who want to buy larger homes,
for example, will face the same obstacles that confront first-time
homebuyers. Third, existing homeowners tend to be wealthier than
new homebuyers, so anti-sprawl planning effectively taxes the poor
and gives the money to the rich.
The saddest thing is that many of the states and cities with
growth-management plans consider themselves “progressive.” In
truth, they are extremely regressive, as they favor wealthy
homeowners and penalize low-income families and first-time
homebuyers. As Joseph Perkins, head of the Northern California Home
Builders Association, puts it: “smart growth is Jim Crow.”
An old Russian proverb says that Americans don’t have real
problems, so they make them up. Urban sprawl is one of those
made-up problems. In reality, the costs of sprawl are far lower
than the costs of anti-sprawl planning. Cities should stop doing
such planning and states should repeal laws that give cities
control over the surrounding areas outside their borders.
