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“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”     Adam Smith

July 9, 2006

Government Regulation And The Housing Market

by Doug Mataconis

The Washington Post has interesting article today about the almost complete lack of smaller-sized homes being bult for the Washington DC/Maryland/Virginia market.

There are several reasons that this is probably occurring. Land values are so high that it makes more sense for developers to build one large homes rather than two or three smaller homes. The result is a market where it is virtually impossible to find a single-family home for less than $ 500,000, and even townhomes are selling in the $ 400,000 price range. Consumer demand is also cited as a reason only larger homes are being built; homebuyers, so this argument goes, don’t want smaller homes, they want the 3,000, 4,000, and even 5,000 and more square foot homes being built all over the DC area today. There is one factor, though, that seems to me to have the biggest, and most distorting impact of all. Government regulation of land use.

Consider this quote from the article:

Architect Christian Lessard said he and the other developers of MetroWest, the 2,250-home project underway near the Vienna Metro station, would happily build a larger number of smaller homes, but community opposition limited the number of units they could build. To make back the cost of the land, he said, the builders designed the townhouses they were allowed to build to be as large and expensive as possible — about 2,500 square feet, a size that in similar developments sells for about $500,000.

Lessard acknowledged that the outcome was not ideal.

“We’re only designing for 20 percent of the population right now. That can’t last forever,” he said. “As a society, we’ll have a problem because eventually no one’s going to be able to afford this other stuff.”

Well, the problem is that government regulation of land use and house size is distorting the market place. If all the developers can build are larger homes, then thats all that people will be able to buy. And some people will be priced out of the market completely.

Even when people recognize the problem that the regulations are causing, though, the only solution they can seem to come up with is more regulation:

Local government planners say there is little they can do beyond measures in place, such as requiring builders to set aside some units as moderately priced. These policies produce only so many affordable units, and builders generally charge more for the market-rate units to make up the cost of building the set-asides

(…)

Fairfax planning director Fred Selden said the county is considering using incentives to ensure a mix of unit sizes in new condominium and apartment projects, but there are no plans to use cottage zoning or any other means to influence the size of townhouses or single-family homes. There’s no doubt, he said, that developers have an easier time getting approval for projects with fewer, larger townhouses because they produce less traffic and less competition for on-street parking, since bigger units come with more garage space

Here’s a radical idea. Stop telling developers what they can do with their property and let them build housing based on market demand rather than economic necessities created by your regulations. Maybe it just might work.

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14 Comments

  1. How Zoning Laws Distort The Housing Market

    Trackback by Below The Beltway — July 9, 2006 @ 11:13 am
  2. Absolutely right.

    100%

    Comment by Ray Hyde — July 9, 2006 @ 6:22 pm
  3. [...] "We should have a law for this" is a phrase that become common idiom. The notion that government can regulate the market, or better – human condition, is common and accepted as fact of life. The general acceptance is that government’s agencies have only the public interest in mind, and that the people working in them are competent enough to make such regulations.I argued , as many others, that such believe is not only wrong practically but is immoral. Doug, from the Liberty papers , brings another example for the effect of government regulations. He quotes an article from the Washington Post about high housing prices around Washington DC. Among other reasons the Article points to:Architect Christian Lessard said he and the other developers of MetroWest, the 2,250-home project underway near the Vienna Metro station, would happily build a larger number of smaller homes, but community opposition limited the number of units they could build. To make back the cost of the land, he said, the builders designed the townhouses they were allowed to build to be as large and expensive as possible—about 2,500 square feet, a size that in similar developments sells for about $500,000.Lessard acknowledged that the outcome was not ideal.Put simple, the government by limiting the number of homes built driving the prices up and making the ability of people with lower income to buy a house. Maybe when Doug’s suggestion will sound less radical we will have better hope…Here’s a radical idea. Stop telling developers what they can do with their property and let them build housing based on market demand rather than economic necessities created by your regulations. Maybe it just might work.    Free Market, Government Regulations, Libertarianism [...]

    Pingback by It looks obvious » The effect of regulations on housing prices — July 9, 2006 @ 6:25 pm
  4. There was a similiar article today in the Times-Picayune about my home parish of St. Tammany and the exact same situation we’re facing here.

    http://www.nola.com/news/t-p/frontpage/index.ssf?/base/news-6/1152428276258250.xml&coll=1

    Comment by Kevin — July 9, 2006 @ 7:37 pm
  5. [...] Government Regulation And The Housing Market [...]

    Pingback by Carnival of the Capitalists - July 10, 2006 - Fat Pitch Financials — July 10, 2006 @ 6:33 am
  6. The question is whether the same regulations are occurring all over the country. I know here in Marietta, I have a modest house built about 20 years ago, at about 2200 sq ft. But all the new construction in the area is 3000+ sq ft homes, and you’re lucky to find them starting in the $400k range, as most are starting in the $600s and above.

    I’m not so sure that it’s regulations that are forcing this. Considering the cost of land, I wouldn’t scoff at the stated explanation, that it simply makes more economic sense to build bigger, more expensive houses. And as you get further from Atlanta, where land is cheaper, you see more reasonable sizes and prices of homes, so that would further suggest that the phenomenon is primarily economic, not regulatory.

    Comment by Brad Warbiany — July 11, 2006 @ 9:09 am
  7. Brad,

    While, I’m hardly an expert on the subject, from what I’ve read, there is hardly a metropolitan area in the US that hasn’t been impacted by the “slow-growth” forces that have sought to change zong and land use laws in ways that make it harder for developers to respond to market demand.

    And I didn’t intend to argue that regulation is the only force that is impacting the size and cost of housing. Land prices and consumer demand certainly have some impact. And, lets face it, those big house look nice (although I sometimes wonder what the heck I’d do with a 5,000 square foot house) But, the distorting impact of laws that make it more difficult for smaller, more affordable, homes to be built should not be discounted.

    Comment by Doug Mataconis — July 11, 2006 @ 7:15 pm
  8. Regulation, zoning and so forth are certainly major factors impacting the costs of housing. They are not, obviously, the only factors. However, I would say that most current US real estate markets are fool’s paradises, with very over priced, over zoned and over regulated markets. Everyone seems to believe that the housing boom will continue forever, and major segments of the consumer economy are being based on it, as are serious portions of municipal and county budgets.

    Comment by Eric — July 11, 2006 @ 7:46 pm
  9. Eric,

    I don’t disagree that there has been a certain degree of irrationality in the real estate market. We’ve seen it in our own neighborhood, and people around here have begun learning their lessons.

    However, as in other bubble markets in history, I think that the distorting impact of regulation on the market is a strong contributing factor to the bubble that ends up being created.

    If land-use laws make it difficult to build, that creates a housing shortage. In an area with high housing demand, which certainly exists here in the Northern Virginia area, that will obviously lead to higher housing prices.

    Eventually, though, as with the stock market bubble in the 1930s, that will bubble will burst. And we’re seeing signs of that here.

    I don’t think the market here will collapse. The economy is too strong for that to happen and builders continue to write contracts. But, its pretty clear that real estate around here is now a buyer’s market.

    Comment by Doug Mataconis — July 11, 2006 @ 8:09 pm
  10. I think we are in agreement Doug. However, I believe the California and Florida real estate markets have gone beyond just over priced and over regulated. Entire segments of their consumer economies and municipal, county and state budgets are based on the real estate. It reminds me of Japan in the late 80′s.

    Comment by Eric — July 12, 2006 @ 8:17 pm
  11. And I didn’t intend to argue that regulation is the only force that is impacting the size and cost of housing. Land prices and consumer demand certainly have some impact.

    It’s not an either-or situation. Land prices are high because of regulation. Many municipalities intentionally impede development in order to increase land prices, usually because local governments want high-density development but don’t want to suffer political accountability by mandating it.

    Comment by Bob Smith — July 12, 2006 @ 10:48 pm
  12. [...] Regulation And The Housing Market Posted By: Doug Mataconis @ 8:33 am || Permalink || || Categories: Individual Rights, Property Rights, Zoning and Land-Use TrackBack URI:http://www.thelibertypapers.org/2006/07/14/zoning-laws-and-property-rights/trackback/ Read more posts from Doug Mataconis • • • [...]

    Pingback by The Liberty Papers»Blog Archive » Zoning Laws And Property Rights — July 14, 2006 @ 8:34 am
  13. [...] And The Housing Market Zoning Laws And Property Rights Posted By: Doug Mataconis @ 7:30 am || Permalink || || Categories: Individual Rights, Property Rights, Zoning and Land-Use TrackBack URI:http://www.thelibertypapers.org/2006/07/18/zoning-laws-and-religious-freedom/trackback/ Read more posts from Doug Mataconis • • • [...]

    Pingback by The Liberty Papers»Blog Archive » Zoning Laws And Religious Freedom — July 18, 2006 @ 7:32 am
  14. Kiss me w poker rurevas

    Comment by Johny Bravovas — July 24, 2006 @ 4:57 am

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