Monday, August 28, 2006

Why the housing inflation?

What has caused the recent and unprecedented housing inflation, rendering houses less affordable in the U.S. than they've been for over a century? Almost surely the answer is the recent rapid increase in zoning and code regulations, driven by coalitions of homeowners under the aegis of Baby Boomer environmentalist and smart growth ideology. Much of the extra costs go to "architects" who must be paid to approve both new housing and additions, but much also come from severe restrictions, for example on height, and from vast areas of land simply being put off-limits to housing. The result is a large benefit to homeowners who sell or get equity loans, but an even larger loss to non-owners who would like to purchase, including millions of people stuck in substandard or cramped housing and over a million outright homeless.

This study, among many other studies and observations, shows a strong correlation between local regulations and local housing prices. The correlation between housing prices and other plausible variables, such as density, is by contrast relatively weak. A reaction which purports to solve the housing costs problem, while actually making it worse, is inclusionary zoning, which more than tripled in California between 1990 and 2003.

See also my previous post on rent-seeking coalitions at the national level.

(Click to enlarge. The following graphs come from the above-cited study).

Housing Prices vs. Construction CostsHousing Prices vs. DensityHousing Prices vs. Zoning