The Planning Tax: The Case against Regional Growth‐​Management Planning

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Regional growth-management planning makeshousing unaffordable and contributes to a business-unfriendly environment that slows economicgrowth. The high housing prices caused by growth-managementplanning were an essential element ofthe housing bubble that has recently shaken oureconomy: for the most part, this bubble was limitedto urban regions with growth-managementplanning.

In 2006, the price of a median home in the 10states that have passed laws requiring local governmentsto do growth-management planningwas five times the median family income in thosestates. At that price, a median family devoting 31percent of its income (the maximum allowed forFHA-insured loans) to a mortgage at 6 percent,with a 10 percent down payment, could not payoff the mortgage on a median home in less than59 years. In contrast, a median home in the 22states that have no growth-management laws orinstitutions cost only 2.7 times the median familyincome. This meant a family could pay off ahome in just 12.5 years.

Growth-management tools such as urban-growthboundaries, adequate-public-facilities ordinances,and growth limits all drive up the cost ofhousing by artificially restricting the amount ofland available or the number of permits grantedfor home construction. On average, homebuyers in2006 had to pay $130,000 more for every homesold in states with mandatory growth-managementplanning than they would have had to pay ifhome price-to-income ratios were less than 3. Thisis, in effect, a planning tax that increases the costs ofretail, commercial, and industrial developments aswell as housing.

The key to keeping housing affordable is thepresence of large amounts of relatively unregulatedvacant land that can be developed for housingand other purposes. The availability of such low-costland encourages cities to keep housingaffordable within their boundaries. But whenstate or other planning institutions allow cities togain control over the rate of development of ruralareas, they lose this incentive, and housing quicklybecomes unaffordable. States with growth-managementlaws should repeal them, and otherstates should avoid passing them.