April 09, 2002
Land use restrictions and cheap housing

Virginia Postrel has a recent column in the NYT about how a lack of land use restrictions leads to cheaper housing. I live in the capital of cheap and easy land, so I won't dispute the notion that making it easy to build makes is easy to buy. However, I think there's more to this story than Postrel's breezy overview. Here's the part of Postrel's piece that I object to:

The difference between the land prices is the implicit cost of all the local land-use controls, from zoning to the time it takes to get a permit. Some regulations simply raise the cost of building by slowing down the process. Others limit density, making it illegal to subdivide expensive land.

"If I look around me in Cambridge," Professor Glaeser explained, "there are a large number of $3 million houses on one-half of an acre. Cambridge is also filled with $1 million town houses on a 20th of an acre. If you're an enterprising developer, if you're not stymied by zoning regulations, you tear down the $3 million house, you use the half an acre, and you put up 10 town houses."

Presto: You've made $7 million, minus construction costs, and Cambridge has added nine units to meet the rising demand for housing. If land could be subdivided, that sort of process would happen whenever land prices became high.

But it cannot happen in Cambridge, or most other places in "blue America," because of land-use regulations. The result is soaring prices.

That's fine, of course, with people who already own their homes. "The overwhelming political story is that the majority of homeowners have absolutely no interest in there being affordable housing," Professor Glaeser noted. "The overwhelming reason that we have the web of zoning controls that we have is that local homeowners are powerful over their local areas, and they want to make their housing as expensive as possible."

There's an implicit assumption here that maximum housing on the available land is the most desireable end. The laws of supply and demand certainly say that more available housing means lower prices for all, and there's no question that that's generally a good thing. As I've written before, though, there are other issues involved in how much construction best belongs where, issues such as drainage (a highly nontrivial thing here in the Bayou City) and parking. The free market has no memory or concern for these things, but when ignored they can have a direct impact on everyone in the area, and that impact translates into an externally imposed cost, since after all the builders don't pay for your flood insurance.

And of course, also as I said last time, no restrictions on building may mean that someday you'll wake up to find that your new neighbor is a nasty concrete batch plant. Shouldn't homeowners have some kind of say in that matter?

There's also the fact that while fewer land use restrictions means lower housing prices overall, it doesn't mean that these lower prices are equally distributed throughout a given metro area. Right here in Houston we've seen a huge boom in the housing market in the neighborhoods near downtown. Prices have skyrocketed as builders have tripped over themselves to cram luxury townhomes on the smallest lots possible. Putting aside issues of what this sort of construction has done to the charm of these neighborhoods, it certainly hasn't done anything to make housing more affordable in the area. You used to be able to buy cheap property in Montrose or the Heights, but now even bulldozer bait goes for $100,000 or more. If you want cheap housing, you'd better aim for the outlying areas because it doesn't exist inside the Loop any more.

This has been no boon for the rental market, either. Ten years ago I shared a 3-1 duplex in Montrose, roughly 1400 square feet, for $750 a month. You'd be lucky to find a decent garage apartment in the same area for that price nowadays. Besides, with housing prices as strong as they are, hardly anyone rents anymore anyway. Why be a landlord when you can make a tasty profit selling?

My point is simply that while there's way more high-end housing now available near downtown, there's a lot less middle and low-end housing in the same area. It's not zero sum - there are quite a few more units available - but the housing boom has definitely not meant more affordable housing, at least not everywhere.

Finally, what's so wrong about homeowners controlling their local areas to "make their housing as expensive as possible"? Isn't this a weaselly way of saying to "protect their investment in their homes"? I bought my house where I did in part because I liked the look and feel of the neighborhood. I've happily signed petitions for deed and land-use restrictions in my subdivision precisely because I don't want a developer to come in and start building lotbuster townhomes all over the place. If I'd wanted to live in that kind of area, I could have, but I wanted an older neighborhood with a certain architectural style. Who gets to decide, me or the Chamber of Commerce? People pay a premium for neighborhoods like this one, and that's their choice, just as living in the low-price suburbs is a choice. How is this kind of choice any more restrictive than the one Postrel and her professors are advocating?

Posted by Charles Kuffner on April 09, 2002 to Elsewhere in Houston

Your arguments are well taken, except you have left out a segment of the population, those low income (particularly seniors) who don't want to be warehoused into apartments, but whose income cannot come close to meeting the ridiculous prices that the "homeowners think there homes are worth". If younger people would balk at paying the very inflated prices, the homeowners would soon have to lower the prices to a realistic level and everyone could afford to live in the US, not just the overpaid "suits".

Posted by: Richard Cameron on April 30, 2003 12:49 PM

I've recently relocated here from Germany. The prices of homes in some areas here have almost doubled in two years (I watched them go up over the internet before we got here). My wife and I thought about buying a home as an investment, because we don't plan on retiring here because at these prices, nobody here will be able to afford to retire. Anyway, greed has turned me off. The other thing that turned me off was the quality of the homes. People are paying rediculous prices to live in sticks, paper, and plastic. Those stick homes are going to start decaying and falling apart from the moment they are built. For one, they don't contain enough wood. Two, they don't contain enough nails. And three, on most them, the only thing separating you from the elements is thick plastic siding. Coming from Europe, where the homes are stylish with hardwood floors, tile, and marble staircases, and most of all, made from cement block, I'd say the people here have been duped. Cement block homes are quieter, fire resistant, safer, more secure, and they won't get eaten away by insects. What puzzles me is that America is perhaps the only industrialized country that still build homes out of sticks. Cheap quality homes + Over-inflated prices = Disaster. Don't do it!! I'm building my own home out of concrete blocks--in Texas. That way I'll have a maintenance free home that I can pass on to my children.

Posted by: Chris Lovick on August 22, 2003 9:22 PM