The effects ripple through the market after the initial hit. After home prices go up to accommodate the mandated discounts, they typically go up again, thanks to the increased scarcity caused by builders building fewer homes—something Powell and Stringham discovered when examining the long-term impact of inclusionary zoning. Builders leave cities that impose such mandates and construct homes in areas with better business climates.
The upside to high-cost homes is high property values. Homeowners in such cities as San Jose, Seattle, Los Angeles, Santa Barbara, and Portland benefit from soaring prices. In San Mateo County, California, a person can make $2,000 a day just watching his house appreciate. In San Francisco a person can make more money simply owning a home than working a median-income job or playing stocks. Between March 2004 and March 2005 the median price for a single-family home “soared $106,000, or 21 percent, hitting $605,000,” according to San Francisco Chronicle reporter Kelly Zito. “That appreciation far exceeded the $74,124 the typical Bay Area household earned last year.”
Housing for the Rich
With so much wealth created by government-exacerbated scarcity, the housing market has become increasingly politicized, to the detriment of the people who can least afford it. “A century of experience with regulation of various kinds has taught us that regulation typically favors the affluent and the organized over the less affluent and less organized,” said American Enterprise Institute fellow Steven Hayward, testifying before the U.S. Senate Environment and Public Works Committee in 1999. “There are few groups less organized or represented than the people who would benefit from houses and jobs that do not yet exist.…I think we are being naïve if we fail to recognize that growth management schemes can easily become the machinery of negation by existing residents.”
Hayward provided an example of “negation by existing residents”: Several months before his Senate testimony, homeowners in Fairfax, Virginia, protested at a county commission hearing that their prices were stagnant because the government was “allowing too many houses to be built.” This tendency is especially problematic when you consider that planning commissions and other local government bodies tend to be dominated by the more powerful, established members of a community. New homebuyers, especially younger families, may be denied a house or forced to move further out principally because planners want to artificially enhance their own property values.
Think of the Children!
Across the country, households with children are either migrating out of city limits or never settling there to begin with. San Francisco, where falling enrollments last year prompted the city to close, merge, or relocate more than 20 schools, is the most extreme example. But similar trends are evident in other cities, including Boston, Honolulu, Miami, Denver, Minneapolis, Austin, and Atlanta.
Seattle Weekly columnist Knute Berger calls kids born and raised in Seattle an “endangered species.” In Portland, Oregon, there are so few kids that city officials have been forced to close schools right and left. “After interviewing 300 parents who had left the city,” Timothy Egan of The New York Times reports, “researchers at Portland State found that high housing costs and a desire for space were the top reasons.”
Egan also notes Seattle’s attempt in the 1980s to make the town more family-friendly. “It included marketing the city’s neighborhoods to younger families, building a small mix of affordable housing, and zoning and policing changes to make urban parks more child-friendly,” he writes. It didn’t work: With home prices in Seattle going way up, the junior head count is way down.
The possibility that cities are trying to solve a problem they helped create through misguided regulations is rarely considered by social critics who bemoan the housing squeeze. The solution offered by Warren and Tyagi in The Two-Income Trap isn’t to cut back on regulations, zoning restrictions, property taxes, and impact fees. It’s to reregulate interest rates so people can’t take out “bad” loans.
Regulators and special interests can focus on enacting rules that have specific, narrow benefits for one particular group or another. (In the case of housing, that would be people who already own property and benefit from the price hikes.) But regulations are like pharmaceuticals: Even the beneficial ones have side effects. As the housing market shows, those side effects can pack a heavy wallop. “It is clear,” write the authors of the 2005 HUD study, “that the costs of regulation in suburban and high-growth areas are causing large numbers of households to forgo their dreams of homeownership or to make difficult tradeoffs involving very long commutes.”
Well-intentioned or not, those tradeoffs are diminishing some people’s quality of life to pay for other people’s politically enhanced life-styles.
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