Do You Know the Cost of San Jose?

The high cost of low growth


The dubious honor of fastest-rising housing costs during the last 25 years belongs to San Jose, California. Housing prices there grew 936 percent over that period, beating out even legendarily expensive San Francisco's 821 percent growth.

Housing demand grew because of the city's Silicon Valley location, the center of the computer and Internet industries during their 1990s gold rush. Meanwhile, supply was restricted thanks to the city's rigorous application of growth control planning dating back to 1970.

Randal O'Toole of the Thoreau Institute, an Oregon-based free -market environmentalist think tank, estimates that urban growth boundaries that limit available land, combined with land use regulations that make building more expensive and time-consuming, have tripled housing costs in San Jose compared to those in similar cities.

After creating the problem—manifest in 50-year-old two-bedroom houses costing $400,000 and 2,200-square-foot four-bedroom houses costing $630,000—the city government applied the traditional government solution: affordable housing subsidies, in San Jose's case costing $180 million. But O'Toole's calculations indicate that the total increase in housing prices caused by the growth limits could be as high as $100 billion. Some of the $180 million in subsidy money comes from the federal government, so poor residents of Mississippi, for example, are helping house affluent people in San Jose. Even with the subsidies, San Jose housing prices remain higher than most Americans could afford.

San Jose's shocking housing price inflation is a vivid example of how government planning creates unintended and unwanted results when it collides with human choices and unexpected change. It also illustrates the political traps that make changing course difficult. As O'Toole notes, "62 percent of San Jose families own homes today, and they aren't going to want to see the drop in home values that would result from eliminating the urban-growth boundary or relaxing land use regulation."