Regulation chokes housing market

For many years, people of all income levels were able to buy homes in the Puget Sound region because there were houses available within affordable price ranges. Today, a shocking proportion of the population is excluded from the housing market. What happened?

Since the early 1990s, the trend, nationwide (and worldwide), has been for local governments to adopt the environmental schema of the U.S.-U.N. "Agenda 21" agreement of June 1992, which espouses the concepts of "smart growth" (forcing all new growth into the cities) and "sustainability" (maximum use of urban owners' lands, with restoration and preservation of rural owners' lands). Once adopted, thetenets therein persuaded our government to gradually abandon market control for central control of land and population growth.

The results in our locale are: governments' selective interpretations of the 1990 Washington state Growth Management Act; urban growth boundaries ("UGB") that define the urban areas beyond which little growth may occur ("smart growth"); and building regulations to implement environmental "sustainability."

Unfortunately, recent government predictions and provision of available buildable land within the UGB were not sufficient for the reality of the ongoing increase in jobs and population. (It is difficult to predict future human activity.) Consequently, as demand increased, urban land was not available to satisfy it. This caused urban land to become ever-more scarce and, so, ever-more expensive.

In order to recoup the cost of the resulting expensive land, home builders had to build larger, more expensive homes, instead of smaller affordable ones. Besides that, the many stringent environmental building regulations and their time delays (time is money) affected construction and cost for both single- and multi-unit buildings. Add to all that the use of veto power when neighbors coalesce to keep high density out of their neighborhoods and you can understand why there is an affordable-housing shortage and spiraling home prices in this area.

In centrally controlled markets, builders have to work within the parameters set for them and cannot increase supply independent of government; whereas in free markets, when prices rise because of demand, builders will choose to increase supply, which will decrease prices.

Corroborating these observations is a nationwide study of two dozen cities ("The Impact of Zoning on Housing Affordability") by Edward L. Glaeser, an economist at Harvard University, and Joseph Gyourko, professor of real estate and finance at the Wharton School of the University of Pennsylvania. It concludes that where there is government regulation (limited supply and inelastic costs), persistent bubbles are created. In general, they found that, in recent times, the areas with the highest prices have the least amount of new home construction, which is the opposite of what, in Economics 101, we all learned should happen.

In their analysis of that phenomenon, the authors note that the physical cost of construction as a percentage of home prices has diminished over previous years and that it is the rising cost of land and the regulatory permitting process that have effected that.

Glaeser and Gyourko emphasize that the inelastic cost that raises price is regulation, which limits supply by determining the timing and cost of production. As population increases, builders do not have control over speeding up the permitting process and/or lowering costs (except through lower quality); consequently, supply does not keep up with demand and prices rise. This will continue as long as demand increases, regulation restricts supply of land, and regulatory permitting costs remain a significant portion of the cost of production.

Here in the Northwest, today, the result of central planning is a large bloc of deliriously happy voters whose homes have appreciated hundreds of thousands of dollars during this government-created, spiraling-home-price bonanza; however, there is also another large and fast-growing segment of voters who cannot participate. Do we want to keep doing the same thing under the banner of environmentalism and getting even worse results?

Historically, central planning failed in nations that tried it, and it is failing here. The economies and environments of those nations were destroyed because of the impossibility of foreseeing the innumerable interactions influencing them both and the unintended consequences of attempting to control them; but, when an economy is owner-centered, with government-sponsored incentives for government-perceived goals, the free market works and produces fruitful outcomes for people and the environment, too.

Therefore, in order to rescue both environment and people, let us return to the free-market policies that made this a nation of economic opportunity for all and a nation of freedom secured by strong property rights.

Edwina Johnston is a Seattle resident who has maintained 30 acres in the rural area for more than 30 years. She is a member of the Citizens Alliance for Property Rights (www.proprights.org)