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.