“Restrictive land use regulations and geographic land constraints are lined to larger booms and busts in housing prices. [They] amplify price responses to an initial positive mortgage-credit supply shock, leading to greater price increases in the boom and subsequently bigger losses.”The argument is simple supply and demand: when the government places limits on the supply of land available to build on (whether to protect a river or counteract sprawl), it will put upward pressure on prices. With more and more demand, and no more land, this could be the recipe for a Boom.
Huang and Tang’s results poses a bit of a crisis for the housing sustainability squad, who have hung our hats on the long term economic “smarts” of compact land use. The Center for Housing Policy has done loads of research on sustainable communities, and staff are looking into the intersection of regulations and affordability as we speak. But a few initial retorts are after the jump.
- First, blaming dense urban areas for the housing bubble overlooks where the burst ended up blazing the worst: the suburbs. A disproportionate bulk of foreclosures have occurred in the outer stretches of metro areas, where buyers believed housing was more affordable than it actually was, and few families considered transportation, the hidden cost of sprawl. So before we blame sustainable development for starting the fire, let’s remember what the alternative patterns had in store for us.
- It may be true, as Matt Yglesias argues, that limiting the supply of land can sometimes lead to price elevations – but when you put land use regulation in the broader context of other smart growth strategies, affordability can be one of many positive outcomes. For example, cities can incentivize affordable housing production within compact, mixed-use neighborhoods through density bonuses and other policies that lead to more opportunities for households with a mix of income-levels.
- Last, we need to broaden the metric beyond just housing costs, and include transportation expenditures as well for a full “cost of place.” Designing a mix of housing types in compact and walkable communities, close to shopping and jobs or transit, brings down one of families’ top expenditures (and leaves more money in their bank accounts, thus making housing more affordable). This sounds like no big deal, until you consider that transportation costs creep toward housing levels for millions of Americans. (A Heavy Load, the study by the Center for Housing Policy and Center for Neighborhood Technology, showed the complete cost of housing, transportation and utilities combined accounting for 57% of the incomes of working families making $20,000 to $50,000 a year in 2000.)
If there’s one lesson to take away from a foreclosure burst, it’s that local and national markets aren’t sustainable if they aren’t affordable.
But what say you, wise readers? Can we put together a collective defense of smart growth to put Mr. Hiskes at ease?
*Update: Jonathan has reminded us that he's not technically an "evangelist" for smart growth, but an inquisitive supporter. It's true - posing the original question shows a healthy dose of skepticism. We're all just looking for answers, aren't we?