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Planning vs. Affordable Housing

Mises Daily: Saturday, July 15, 2006 by

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Local government growth-management planning has been a bone of contention during debates in Nevada between Democratic gubernatorial candidates state Sen. Dina Titus and Henderson Mayor Jim Gibson. Titus championed a bill in the 1997 Legislature that would have limited development in Clark County. The measure, based upon restrictions used in Portland, Ore., would have severely limited development outside of a "ring around the valley."

Titus believes that her ring idea, if implemented, would have led to higher property values and "caused more planned, rational growth." Titus is likely correct that property values would have increased, but is that a good thing? Growth controls and growth-management planning lead to increased home prices and declines in housing affordability, according to a new study from The Independent Institute, authored by Randall O'Toole, a senior economist at the Thoreau Institute.

"Smart growth" initiatives create artificial housing shortages that push up the price of housing and keep low-income families from affording a home. Although housing prices have increased significantly in the past few years, cities with growth-management planning saw price increases from 4 to 14 percent per year, while cities without these planning initiatives experienced price increases of only 1 to 3 percent.

O'Toole found that more than 30 percent of the aggregate value of homes in America is attributable to housing shortages produced by growth planning. Last year alone, homebuyers paid an estimated $275 billion more for homes because of restrictive planning, according to the study.

Growth-planning schemes such as Titus's "ring around the valley" plan increase property values to the benefit of wealthy and middle-class homeowners, while blocking low-income people from enjoying the numerous benefits of homeownership.

In a paper published in the Journal of Urban Economics, professors Richard K. Green and Michelle J. White found that one of the primary benefits of homeownership is the effect on children. In fact, Donald R. Haurin, professor of economics, finance and public policy at Ohio State University suggests that education can be improved more effectively by promoting home ownership than by funneling more tax money directly to schools.

Haurin's research found that homeowners are less likely to relocate than renters, thus providing a more stable environment for children. Haurin also points to a better physical home environment, a more emotionally supportive environment, and greater connection to neighborhood networks as benefits to children of homeowners.

Homeowners have a financial incentive to take care of their dwellings and save money for payments and repairs. The financial responsibilities and habits required of parents to manage homeownership are invaluable in instilling the same sort of values in their children. "Homeownership also leads to measurable increases in self-esteem and neighborhood stability," O'Toole explains, "which probably contributes to the better educational outcomes."

Las Vegas and Reno, while not yet saddled with direct growth-management planning, suffer from an artificial land shortage created by the federal government's ownership of 90 percent of state land. O'Toole believes that increasing resistance from environmental groups to BLM land sales "might be considered a form of growth-management planning, and it explains why Nevada cities have become unaffordable despite the lack of any state or local growth-management planning." O'Toole estimates that homebuyers in Reno and Las Vegas have paid $64 billion more for housing because of the government-created land shortage. He estimates the cost was $100,000 to $130,000 per home in 2005.

A lack of supply creates housing affordability problems, not increased demand. Some of the fastest-growing cities in the nation — such as Atlanta, Houston and Raleigh — have not seen the price increases that slow growth California cities have.

Three factors make up the price of homes: construction materials, labor and land. Labor and materials are very mobile and thus are similar in all markets. What is not mobile is land. And because housing is an inelastic good — small changes in supply lead to big changes in price — supply restrictions lead to large home price increases, according to O'Toole.

Thus, smart-growth plans like those put forth by Titus and the Clark County Community Growth Task Force last year would further compound the affordability problem we already have in Southern Nevada. And, as O'Toole points out, the most disturbing aspect of the planning penalty is how regressive it is. Planning harms low-income families and first-time homeowners the most, "while it provides windfall profits for wealthy homeowners."

Growth-management laws serve only to increase home prices and exclude more people from enjoying the benefits of home ownership. Government should get out of the way and let homebuilders provide affordable housing that will change the lives of low-income people for the better. As O'Toole emphasizes, "Barriers to homeownership can only be regarded as un-American."