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Housing and the American Dream

Housing represents more than just shelter against the elements. In America, it represents an important lifestyle choice and source of wealth. Do you prefer to live in a high-density urban core? A moderate density inner-city neighborhood? A low-density suburb? An ultra-low-density portion of the urban fringe? Or in practically zero-density rural areas?

Density, of course, represents more than just people per square mile. Higher density areas tend to have a wider variety of goods and services available, which is why their proponents consider them more exciting. Lower density areas tend to be less regulated, which gives their proponents a feeling of greater freedom, albeit with the risk that a next-door neighbor may build something you don't like.

Naturally, density is not the only or even the first criteria people use when choosing housing. School quality, crime rates, proximity to jobs, and access to recreation facilities or open space all influence housing values. Yet all of these things can be influenced to some degree by density.

Despite the stereotypes embraced in such terms as ticky tacky or cookie-cutter development, what is amazing about America is the extremely wide variety of housing and lifestyle choices that are available. Yet it is exactly this choice that is under fire from so-called smart-growth advocates, who seem to believe that the only legitimate choices are urban and rural -- and rural is only legitimate for people with rural occupations.

For example, the Congress for the New Urbanism insists that "all development should be in the form of compact, walkable neighborhoods." This demand is not just limited to new developments; the group also supports "the reconfiguration of sprawling suburbs into communities of real neighborhoods." Real, to the Congress for the New Urbansim, means compact, while walkable usually means auto-hostile. Moreover, says the group, "development patterns should not blur or eradicate the edges of the metropolis." In other words, five-acre lots on the urban fringe are illegitimate because they "blur" the distinction between urban and rural.

In addition to providing lifestyle choices, American housing plays an important role in building wealth. This is because homes can be used as collateral to obtain loans that can then be used to finance educations, start businesses, and do other things that boost the homeowners' income.

According to economist Hernando DeSoto, "The single most important source of funds for new businesses in the United States is a mortgage on the entrepreneur's house." More than two out of three American familes own their own homes, and DeSoto says this high rate of homeownership helps explain why the U.S. is the world's wealthiest nation. Anything that increases the cost of homeownership therefore limits people's ability to generate wealth and poses a particularly severe hardship on low-income people who do not yet own their own homes.

Zoning and other regulations designed to limit urban expansion or impose lifestyle choices on other people all serve to drive up the cost of housing, especially those forms of housing not favored by the planning czars. Urban-growth or urban-service boundaries create artificial shortages of land that drive up land prices. Other regulations, including design codes, tree ordinances, and extensive review processes, all increase the costs of home construction.

Coldwell Banker recently estimated the cost of a typical, 2,200-square-foot, four-bedroom house in more than 300 different communities. The cost ranged from $101,000 in Yankton, South Dakota to $1.26 million in Palo Alto, California. While there is obvious some status involved in living in, say, Beverley Hills (the second most expensive community), in general the cities with the highest costs were ones with the most housing regulation. The most expensive areas tended to be in California, while the least expensive tended to be in the Midwest.

This is supported by the National Association of Home Builders' housing opportunity index, which estimates the percentage of housing in various markets is affordable to a median-income family in those markets. Again, the least affordable markets are in California, Oregon, and other highly regulated places.

A recent study published by the Harvard Institute of Economic Research concludes that "government regulation is responsible for high housing costs where they exist." In particular, "difficult zoning seems to be ubiquitous in high-cost areas," says the study.

For example, the study found that "15 percent more of the housing stock becomes quite expensive" when the time it takes to get a permit to build a subdivision of less than fifty homes doubles. This happens for two reasons. First, increasing the permit time adds to the developer's costs. But cities that require more time probably also impose more requirements on homebuilders, such as design codes, impact fees, and other things that increase housing prices.

While smart-growth advocates give lip service to affordable housing, what they mean is subsidized housing for low-income people. Their policies drive up home prices for everyone, and the housing subsidies help only a few people.

For example, housing prices in San Jose are three to four times as great as in less-regulated cities such as Phoenix and Las Vegas, even though the latter communities are growing much faster than San Jose. The total current value of San Jose housing is about $150 billion, suggesting that roughly $100 billion of that value is the result of zoning and regulation. By comparison, San Jose has provided $180 million worth of housing subsidies to low- and moderate-income people in the last decade, which makes up less than 0.2 percent of the cost of regulation. These subsidies benefit just 2 percent of the households in San Jose and provide virtually no help to anyone else.

"If policy advocates are interested in reducing housing costs," say the authors of the Harvard study, "they would do well to start with zoning reform. Building small numbers of subsidized housing units is likely to have a trivial impact on average housing prices."

As noted in the land-use portion of this guide, zoning was originally conceived as a way of maintaining the property values in a given neighborhood, not a way of increasing overall housing costs throughout a region. The alternative to zoning, protective covenants, can maintain neighborhood values without having any impact on regional housing costs.

How do areas that already have zoning convert to covenants? A paper by Dr. Robert Nelson, of the University of Maryland, suggests that state legislatures allow neighborhoods to petition to take over zoning from cities and counties. Provided they meet certain criteria, such as boundaries of a regular shape and majority (or supermajority) support from people in the neighborhood, the neighborhoods would then be allowed to determine their own fates using whatever democratic processes they choose.