Housing: Bigger Isn't Always Better

The Wilson Quarterly (WQ, Summer 2008, Vol. 32, No. 3) published an article by Witold Rybczynski about affordable homes:

What's driving the high cost of houses today is not increased construction costs or higher profits...but the cost of serviced land.

The author refers to "serviced land" in two ways: one, the passing of costs from the government to developers for infrastructure; and two, NIMBY (Not In My BackYard).

Prior to Prop 13, the government would increase taxes on local communities for services necessary to increased population growth, such as new roads, new parks, sewers, and general maintenance. Now, many local governments cannot increase property taxes to make up for the increased need for services, so they force developers to pay these costs if they want to build. The developers take the financial infrastructure hit up front and pass those costs onto the homebuyer at the end, in the form of higher home prices.

NIMBY is easy to understand in this case. There is "widespread resistance to growth," so locals pass zoning laws and restrict building permits to prevent more houses from being built. These legally mandated slow growth policies lead to pent-up demand and not enough supply of houses, causing artificially inflated values. Anyone who's lived in Northern California and New York knows there isn't really a problem with overpopulation and population density in California to justify California's slow growth policies--at least not yet.

Rybczynski says:

According to the research of economists Edward Glaeser of Harvard and Joseph Gyourko of the Wharton School, since 1970 the difficulty of getting regulatory approval to build new homes is the chief cause of increases in new house prices. In other words, while demand for houses has been growing, the number of new houses that can actually be built has been shrinking.

One tactic cities use to stall new homes is zoning for large lots, like one acre. This forces larger houses and higher prices. In the past, many individual homes would be only 1/6 of an acre. The author states:

Smaller houses on smaller lots are the logical solution to the problem of affordability, yet density - and less affluent neighbors - are precisely what most communities fear most.

I would love to see a return to smaller houses. One advantage of not having a lot of space is people will consume less if they know there isn't so much space to hold their new purchases.

Comments

[contrariwise:]

Seems simple enough to solve. Since the GSEs have to ration mortgage funding, why not redline those areas with stupid development policies?

2008 Sep 15 12:03 PM

[Steven Hansen:]

zoning does not meet the test of cause to effect the housing price bubble. show me the evidence.

2008 Sep 15 10:22 PM

[simplesimon:]

By Jove, I think you've got it. You may or may not believe the community wide resistance to new developments. This town in particular grew from 5,000 ( I was born here ) to over 100,000. There are no expressways, or beltways to handle the traffic. That seemed to be the last consideration. There are many reasons-e.g. a sustained drought w/mandatory water restrictions, and it seems virtually all the developments 'boast' of "Lots starting int he low $200,000" Natives like me think "That's low? How long have I been asleep?" My home was $18k 37 years ago; and I'm still in the same house. This is just mind numbing. Add to that it seems there has to be a golf course, God forbid there's no gold course, which requires 40,000 gallons of water a day to maintain. Naturally all the lending institutions just adored all this filthy lucre flowing like a deluge into their coffers. Salesman became millionaires themselves with those prodigious commissions. So they all maxed out their lines of credit, as the bubble just grew and grew without end...almost a generation. Now, with no equity to draw on, no proceeds from equities; and sales , legal fees, and every ancillary home product provider you can think of contracting, and letting staff go. And here I am, never having felt the need to one up my 'associates", or my neighbors, or my fellow churchmen,...am sitting safe, sound and secure. Yes, it's a tiny house , yes I am a lowly blue collar worker ( shudder ! ); and own three cars, one 12 years old, one 37 years old, and one 57 years old, and a wooden boat I had the time and money to build. I highly recommend living modestly. Now if we can only encourage everyone else to offload the need to impress with conspicuous consumption...( fat chance!) . But it would be nice. Don't you think?

2008 Sep 15 10:31 PM

[fossil:]

I agree with you on the cause for high prices in land and housing. That is where our common view ends, however. I believe that some of the ills of society are caused by unnaturally close proximity. With no real privacy and a lack of physical/natural things to do (that have been done for tens of thousands of years), people are frustrated and in each others' way. Can you spell "homeowners' association"?. The simple pleasures of the "country" are missing from the lives of people packed into densely zoned areas. Consumption is partially driven by boredom and frustration. Try living in the country, planting a garden, riding, fishing, etc. I disagree with you completely on your desired outcome. We need to open up more areas in diverse parts of the country for "homesteading", not pack people more densely into concrete jungles. Say "Hi' to your friends at PETA and the Sierra Club for me.

2008 Sep 16 12:08 AM