Sunday, February 19, 2017

A maze of local land-use laws make housing scarcer and more expensive

See Why Falling Home Prices Could Be a Good Thing by Conor Dougherty of The New York Times. Excerpts:

What if the regulations were not so burdensome?
"They would be somewhat cheaper in most places, where population is growing slowly. But they would be profoundly cheaper in places like super-expensive San Francisco.

That was the conclusion of a recent paper by the economists Ed Glaeser of Harvard and Joe Gyourko at the Wharton School of the University of Pennsylvania. The paper uses construction industry data to determine how much a house should cost to build if land-use regulation were drastically cut back. Since the cost of erecting a home varies little from state to state — land is the main variable in housing costs — their measure is the closest thing we have to a national home price.

According to them, a standard American home should cost around $200,000, a figure that includes the cost of construction, what land would cost in a lightly regulated market, and a modest profit for developers. In many places, that’s what the prices roughly are."

"By the paper’s calculations, a home in the San Francisco area should cost around $281,000.

The actual price for a standard home in the area is more like $800,000 (using 2013 data). The paper argues that most of that difference is caused by regulatory hurdles like design and environmental reviews that can add years to a project’s timeline and suppress the overall housing supply."

"their general conclusion — that an abundance of new homes would result in lower prices — is not remotely controversial. Many studies, from the McKinsey Global Institute, California’s Legislative Analyst’s Office and others, have shown that California’s high home prices are largely a supply problem: The state doesn’t build enough homes."

"Tokyo has not had rapid home price appreciation because increases in demand are met with increases in new building."

"Say we opened the floodgate of development. What kind of effects could we expect? The economy would grow, and by a lot. According to a recent paper by the economists Chang-Tai Hsieh, from the University of Chicago’s Booth School of Business, and Enrico Moretti, from the University of California, Berkeley, local land-use regulations reduce the United States’ economic output by as much as $1.5 trillion a year, or about 10 percent lower than it could be.

That is a theoretical figure that includes easy-to-see things like increased sales of building materials and more jobs for construction workers. Most of the increase, however, would come from more abstract gains like increased wages for people who are willing to move from an economically distressed city to a faster-growing economy elsewhere, but are currently unable to because housing is too expensive."

"lower home prices would encourage workers to move farther and more often in search of job opportunities. The impact on mobility could be huge, as the $1.5 trillion figure shows.

There was a time, a few decades ago, when the cost of living did not vary all that much from city to city. Since then, as places like New York, San Francisco and Seattle have been hit with skyrocketing rents and home prices"

"when home prices were more even from place to place, people with different levels of education and income tended to flock to the same types of high-wage places"

"Today, people with less education tend to go where housing is cheap, like Las Vegas, while college-educated workers with skills that are in demand still go to places where wages are high, like the Bay Area.

That’s because lower-income people have little to gain by going to California’s coastal cities. Wages might be higher, but as the state’s poverty figures show, a better paycheck doesn’t help if it’s swallowed by rent. The loss of mobility makes income inequality worse"

"Finally, if housing were plentiful and cheap, we would probably stop having big housing bubbles."

"housing is already relatively affordable in the vast majority of American cities. So there is little reason to believe that people would desert overpriced neighborhoods if they suddenly became cheaper."

"Take Boston. The median Boston suburb has a minimum lot size of one acre, and many suburbs have minimum lot sizes of one home per two or four acres. That is a huge drag on the region’s overall housing supply, according to Mr. Glaeser."

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