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.

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.

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.

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.

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