Cato study finds regional planning makes homes unaffordable

Growth management is bad for business, makes costs of homes soar

December 6, 2007

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Close to 40 percent of Americans live in states and regions where growth-management planning has reduced housing affordability .  According to a new study by the Cato Institute, such planning is the primary cause of the recent housing bubble.

In “The Planning Tax,” Cato senior fellow Randal O’Toole shows how regional growth management drives up the cost of housing. “Growth management planning — planning and zoning that seeks to promote the general welfare by controlling the development of all urban and rural land within a state or region — makes housing unaffordable by limiting the amount of vacant land that is readily accessible for new housing,” O’Toole writes. The planning tax that these policies impose on aspiring homeowners can be enormous, reaching as high as $700,000 for a median home in the San Francisco Bay Area. These artificially inflated prices have also contributed to destructive bubbles in the housing industry.

Successful growth doesn’t necessarily entail high home prices, as demonstrated by rapidly growing regions like Atlanta, Dallas-Ft. Worth, and Houston. “These examples show that the key to housing affordability is the existence of relatively unregulated private land in unincorporated areas near to the cities,” says O’Toole. “Most expensive housing markets in the U.S. have plenty of private land that is physically suitable for development; it has just been closed to development by urban-growth boundaries or other government restrictions.”

O’Toole recommends that Congress eliminate requirements that urban areas must be represented by metropolitan planning organizations and that states repeal growth-management planning laws. If they do not, he concludes, “The predictable result will be increasingly unaffordable housing, declining homeownership rates, and a growing disparity between the elite who own their own homes and a significant number of families who will never become homeowners.”