Thursday, March 5, 2009
What role does land use regulation have in determining housing prices? In 2005, I published a piece in the Urban Lawyer (“The Three Levels of Ownership,” 37 Urb. Law. 385), which relied on economic studies that, as I put it, “place[d] much of the blame [for high prices] squarely at the feet of laws restricting new housing construction.” By limiting supply through laws to protect the environment, foster low density, and preserve community and character, land use laws had driven up housing prices, the argument went. I quoted a study that chided other analysts for focusing too much on the demand side and not enough on the supply side.
Nearly four years later, I conclude that my comments were overstatements, at best. In 2009, our news is filed with stories about how the housing bubble was caused primarily by high demand, which was fed in turn by easy credit, subprime loans, and the irrational exuberance of buyers who felt that housing prices would continue to rise forever. Once these unsustainable forces were popped, housing prices stalled and then fell. And one of the weirdest results is that the ability of a modest-income family to buy a house may have become tougher in some instances because credit is so much tighter. I acknowledge my errors, and I wish I had emphasized more strongly in my piece the observation that the housing boom of 1998-2005 did not necessarily coincide with an era of tougher land use regulations or tighter supply.
What can we learn from such “overstatements”? In 2005, in analyzing applications of some of the models, I concluded that “the politics of land use are often messy and unpredictable and do not always fit economic models.” Perhaps a lesson from our current observations is that economics of supply and demand is equally complicated, and that pat, one-directional answers are likely to be oversimplifications …
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