“Smart Growth” As an Existing-Homeowner Investment Strategy
Plenty of think tanks predicted in the late 1990s that home prices would go up at a rate far outpacing inflation if “smart growth” initiatives took hold in a significant number of areas.
Well, here we are. One example is Metro Washington (HT Below the Beltway):
Economists increasingly are concluding that the shortage of affordable housing in Washington and other major U.S. cities on the East and West coasts is a result more of man-made restrictions on development than high construction costs or other market forces.
“It simply takes too long and is too expensive to move through the development process,” said Mark Vitner, senior economist at Wachovia Securities, pointing at “smart growth, slow growth and no growth” movements in many of the same areas where the population and demand for housing are growing the fastest.
What many economists have been proclaiming as a “bubble” in Washington and other high-cost areas can be mostly explained by the restrictions on development, combined with a rush to homeownership by renters taking advantage of low interest rates, he said.
The restrictions have mounted as homeowners have grown more powerful and more willing to use their power to stop or greatly restrict development in their neighborhoods through the political and regulatory processes and the courts, according to a study published recently by the National Bureau of Economic Research.
Since 1970, Washington and other coastal cities where housing prices have exploded have seen “a significant increase in the ability of residents to block new projects,” transforming vast swaths of the cities into “homeowners’ cooperatives” that are no longer open to growth, said Edward L. Glaeser, Harvard economist and one the study’s authors.
Very clever. In the name of “quality of life,” what those restricting development are doing is simply reducing the supply of available housing. Reduce supply in the face of persistent demand and you get…. rising prices for existing homeowners, and huge difficulties for potential first-time homebuyers (does anyone even build “starter homes” any more?).
It’s a great investment strategy for existing homeowners. Whether it’s good public policy is debatable. One thing development restrictions definitely lead to is first-time and cash-strapped buyers heading as far out into the countryside as they can to find housing they can actually afford. Then they get to listen to elitist homeowners in the inner rings decry the “sprawl” and “waste” of gasoline caused by the long commutes that the development restrictions they put into place caused.
It also explains the relatively low prices and non-bubble we are experiencing in the midwest as a combination of factors of greenspace availability. Specifically, developers know that if Hamilton County gets too restrictive, they can move out to Warren, Butler or Clermont. And if Ohio as a whole gets pricy there is always Kentucky, which is vastly underpopulated (have you ever driven to Loser..er Louisville?).
Comment by dave — December 14, 2005 @ 12:21 pm
Find some open space in these areas to build on. Go ahead, I dare you.
Comment by Kevin Irwin — December 14, 2005 @ 1:04 pm
The issue is not prohibiting or restricting development. True smart growth would encourage development. It would be to utilize less land to house more people. Increase population density. Rethink the way our homes are built. Rethink the way communities are built to increase mixed use. Go vertical, to a 4 floor setting pervasively in the community.
The problem is not smart growth. Its right wing radicals who think individualism is all about having a 2 acre lot with a vinyl house, with all the surrounding wildlife killed off.
Comment by Adam — December 17, 2005 @ 7:14 pm
I think they’re just people expressing their preferences.
But ex-urbanites are really right-wing radicals?
Whew–Who knew?
You’re the first person who I’ve ever heard propose a “4-floor setting.” Is there a constituency for this, besides people who today are known as “apartment dwellers?”
Comment by TBlumer — December 17, 2005 @ 8:05 pm