Some of the social media responses to a Wall Street Journal article in September headlined, “The U.S. Is Running Short of Land for Housing,” were heated. They proved — for anyone who has yet to realize it — that Twitter and Facebook users might not always read posted articles particularly carefully (or at all) before offering their expert critiques of them.
Commenters responded with the obvious point. We’re not running out of land! The United States has a population density of a mere 94 people per square mile. (For comparison’s sake, Singapore has more than 20,000 people per square mile and Germany has 605 people per square mile.) There’s plenty of available land almost everywhere, even on the outskirts of major metropolitan areas in the densest regions.
Have these Journal editors so rarely ventured away from Manhattan that they haven’t seen the vast stretches of mountains, prairies, deserts, and forests that spread across the continent? Well, of course they have. In fact, the article’s nuance is perfectly clear even in the sub-headline: “Land-use restrictions and lack of infrastructure have made it harder for developers to find sites to build homes.” Perhaps commenters missed the term “land-use restrictions.”
The issue isn’t a lack of land or even a lack of buildable land. Builders can make some of the geographically toughest lots buildable, albeit at a steep price. Simply put, growth controls, urban growth boundaries, conservation easements, and other public policies that forbid or limit development on large tracts of land are the primary culprit. So are governments that refuse to invest in infrastructure for open areas adjacent to booming metros.
I’m always stunned during my frequent drives from Sacramento to the San Francisco Bay Area by the incredible amount of vacant land right until I approach the central city areas. As one heads south from Marin County toward the Golden Gate Bridge, for instance, one sees nothing but pastoral vistas right until San Francisco’s fog-soaked skyline comes into view.
Eighty-four percent of Marin County’s land has been set aside as one form of open space or another — and good luck getting the approvals needed to build on lots within the other 16 percent. Even in a somewhat falling market, Marin’s median home price hovers around $1.7 million. Likewise, open hillsides envelop relatively affordable Oakland, which has a median home price above $900,000. Do you think there might be a connection?
We can enjoy the lovely hillside views while also realizing that these policies come at a price. They do indeed make land scarce. Yes, Twitter users, I know that it isn’t physically scarce but the price of land is driven almost entirely by its level of entitlement. An acre of Bay Area land that’s zoned for high-rise apartments could fetch tens of millions of dollars while a neighboring parcel that’s zoned solely as a conservation easement is worth a pittance.
Building restrictions drive up lot prices, which increase overall home prices. “The historic land boom has provided a windfall for homeowners,” the article explained. “Land now accounts for 47 percent of U.S. home values, estimates (Rutgers University Finance Professor Morris) Davis. That’s up from 38 percent in 2012 and less than 20 percent in the early 1960s. The rising value of land is responsible for almost all of the surge in home values in recent decades, he said.”
Many Western cities in less-populated states also are surrounded by open but growth-restricted land. Those limits are not always the result of the growth controls that one finds in progressive cities such as San Francisco and Portland. For instance, the federal government owns 85 percent of Nevada’s land — and sprawling Las Vegas and Reno are running up against these boundaries.
In a time of land inflation, the Journal added, owners become reluctant to sell given their expectation of increasing price growth. That adds to the upward price spiral. And the article’s second point about infrastructure also is noteworthy. Once cities embrace these growth-control strategies, they focus their infrastructure-building attention within the urban core. But not all developers are skilled at building high-density properties, so underinvesting in the outskirts leads to less suburban building.
“Most economists say municipalities need to relax zoning rules and other restrictions to bring down land inflation and build more housing,” the Journal concluded. That’s spot-on. To its credit, California’s lawmakers have in the past two years approved several notable housing laws that reduce land-use regulations, but it won’t be enough until they address the vacant land issue and try to reduce regulations across the board.
This year, Gov. Gavin Newsom signed two bills that allow “by-right” approval of housing developments on sites now occupied by shopping centers. He also signed one eliminating many parking requirements for commercial and housing developments — thus appropriately leaving those decisions in the hands of the marketplace. Overly prescriptive parking rules drive up costs and reduce development.
Last year, Newsom signed two landmark laws, Senate Bills 9 and 10. The first allows property owners to build up to four units on lots now zoned only for a single home and the second makes it easier for developers to build 10-unit properties along transit lines. Oregon previously eliminated single-family-only zoning. (It’s a pet peeve that supporters talk about eliminating single-family zoning — thus creating the false impression that they ban single-family homes. The word “only” is a necessary descriptor.)
California’s and Oregon’s left-leaning legislatures didn’t suddenly get the free-market religion, of course. They see these deregulatory proposals as a means to achieve their preferred ends: higher-density construction in urban areas. That’s fine as one option and SB 9 applies to all communities and not just urban ones, but their insistence on concurrently advancing growth controls outside the urban core leads to the land inflation that the Journal article detailed.
Housing markets tend to be regional. If, for instance, developers could build on a larger slice of land outside of San Francisco and Oakland, that would increase supply and reduce land prices throughout the entire Bay Area and could moderate prices in those cities, too. As John Seiler explained on the Free Cities Center website, these land restrictions do a terrible job of achieving their stated goal of reducing sprawl.
Home seekers simply leapfrog into other counties that lack the growth restrictions and then endure grueling commutes back into the cities they fled. Don’t try driving across the Altamont Pass from the San Joaquin Valley into the Bay Area or from the Inland Empire into Los Angeles or from Salem to Portland during rush hour — not if you value your sanity. Then again, there are beautiful hills to enjoy while sitting in the grueling traffic.
One final note. Australian policymakers have totally embraced this high-density New Urbanist vision. That country is roughly the same size as the continental United States yet has 26 million people versus our 332 million. Its population density is only nine people per square mile — yet most Australians live in a handful of dense urban areas. The government decides when to release private land into the marketplace as a way to reduce sprawl. So despite Australia being virtually empty, that nation also faces a “shortage” of land.
As a result, home prices in Australia (as in most major American metropolitan areas) are exorbitant because of these restrictions. Urbanists want middle-class Americans to embrace city living, but these policies have turned nicer big city neighborhoods into playgrounds for the wealthy (and the not-so-nice ones as crime-infested dystopias). There’s a reason San Francisco has largely become a childless city.
Western states need more housing construction, period. The California Legislative Analyst’s Office pegs the state’s underbuilding at 140,000 units a year. In reality, most building will take place on undeveloped tracts in growing suburban areas. If policymakers continue to restrict such construction, these land shortages will become more pronounced — an oddity in a nation with billions of empty acres.
Steven Greenhut is the Western region director for the R Street Institute. Write to him at firstname.lastname@example.org.
This column was reprinted from the Free Cities Center, a new Pacific Research Institute project that promotes market-based solutions to urban problems.