Why Homes Are More Expensive In One Area Than Another – Environmental Regulations

Thomas Sowell writes on the often overlooked yet very significant factor of high priced homes in different parts of the country:

The pattern is this: Despite hysteria over high home prices, in most parts of the United States housing is quite affordable. But in some places housing prices are astronomical — three times the national average in much of California, for example.

Despite the old rule of thumb that housing should cost no more than one fourth of your income, there are parts of California where tenants and new home buyers pay at least half their incomes for housing.

This can be a serious problem in such places because it means that only the other half of people’s income is available to pay for such frills as food and clothing.

These dire situations are more likely to be featured in the media, partly because bad news sells newspapers and gets higher television ratings. Moreover, media elites are more likely to be living in the places where housing prices are out of sight — places like Manhattan, coastal California, and the posh suburbs around Washington or various other cities.

It is a very different story in most of the rest of the country. A scholarly study published in the October 2005 issue of the Journal of Law and Economics concluded: “In the sprawling cities of the American heartland, land remains cheap, real construction costs are falling, and expanding supply keeps housing costs low.”

In some cities, housing prices have actually declined as the housing supply has expanded. None of this is rocket science. It is supply and demand.

Why then are there particular places where housing costs have skyrocketed?

In those places, much of the land is prevented by law from being used to build housing. These land use restrictions are seldom called land use restrictions.

They are called by much prettier names, like “open space” laws, laws to “preserve farmland” or prevent “sprawl,” “greenbelt” laws — or whatever else will sell politically.

People who already own their own homes don’t worry about whether such laws will drive housing prices sky high. Somebody else will have to pay those prices while existing homeowners see the value of their property rise by leaps and bounds.

Meanwhile, land that might otherwise provide homes for others becomes in effect free park land for themselves, while such upscale communities use “open space” laws to keep out the masses. The crowning touch is that such self-interest is depicted as idealism.

A famous economist named Joseph Schumpeter once said that the first thing someone will do for his ideals is lie. Some people distinguish little white lies from black lies but the biggest lies of all are green lies.

To hear environmental zealots tell it, they are just trying to save the last few patches of greenery from being paved over. But in fact the land area of the United States covered by forests is more than three times as large as the land area covered by all the cities and towns across the nation.

Only about 5 percent of the land is urban. In other words, you could double the size of every city and town in America and still nine-tenths of the land would be undeveloped.

Some of the biggest hysteria about “saving” land is found in places where most of the land is already off-limits to building. Some of the biggest crocodile tears about a need to “preserve farmland” come from people who are not farmers, and who know little and care less about farming.

Chronic agricultural surpluses that cost the taxpayers billions show that there is too much farmland producing more than the market can absorb, while the growing of these surplus crops puts all sorts of chemicals into the ground, water, and air. But the green liars don’t mention that.

Their real agenda is keeping out other people. Home builders who would enable other people to move into their community are called selfish and greedy. Green liars consider themselves morally far superior to “developers.”

6 Responses to “Why Homes Are More Expensive In One Area Than Another – Environmental Regulations”

  1. Big Gringo says:

    Living in LA, the only part of this that holds up is the basic supply-and-demand problem. There are no “laws to preserve farmland,” nor any real open space to speak of.

    What there is a lot of is rising house prices, even here in the ghetto. In my neighborhood – with already a 75% non-resident owner rate – a duplex with 1200 sq.ft lists for $425,00. That’s almost 1/2 a million dollars!! I remember when 1/2 a million in a home used to mean a real value.

  2. There may not be laws to preserve farmland, but there are certainly high environmental regulations and even failed affordable housing laws that all work to artificially inflate the costs of LA homes.

  3. oso says:

    It’s funny … Paul Krugman wrote the exact same thing in last week’s NY Times. Of course, they come to different conclusions.

  4. Actually, we don’t necessarily disagree, Krugman was referring to home prices in general (which, btw, despite the sudden rise, affordability is still at very good levels compared to previous times in history)and I was referring to home prices in one area of the United States compared to another.

    In other words, when calculating the high price of homes, we also must, especially those of us in Blue states, take into account the ‘green’ factor, that artificially high level that environmentalists add by their regulations and environmental restrictions.

    Btw, for those of you who only read Krugman for your economics, be sure to read this New York Times article on home prices as well.

  5. CenturyFarmer says:

    The following is a post from a local blog that favors land use restrictions of the type sowell mentions. housing prices here have gone up an average of 122% in four years, but housing in Arlington which is serve by billions of dollars of subway infrastructure have increased only 70% in four years.

    I have been criticized for questioning the veracity of his arguments.

    I would like your take.


    There now seems to be agreement between [XYZ] and some who have spilled millions of bites trying to discount the relevance of our work. They agree that congestion (the lack of vehicular mobility) is growing worse every year.

    We argue that the measures of vehicular immobility leave much to be desired – see “Spinning Data, Spinning Wheels,” (30 September 2004) concerning the 2002 figures and revisited for 2003 in “Regional Rigor Mortis,” (6 June 2005).

    More important, the transport strategies propounded by MainStream Media, the Autonomobility Lobby, the Land Development Interests and pandering politicians endanger the prosperity, security and sustainability of contemporary civilization.

    Now comes the question about the measures of “accessibility.” Accessibility is the companion of “mobility” in the fundamental equations that must be addressed if there is to be balance between transport system capacity and settlement pattern generated travel demand.

    How do you measure accessibility? May I introduce an old friend? Meet Adam Smith.

    For reasons we document in The Shape of the Future, and explore in our column “Wild Abandonment,” (8 September 2003) the best measure of accessibility is the market. We can measure accessibility by the market even though what now exists is not a free market or an intelligent market. The current market for the built environment is wracked by counterproductive subsidies but it is still a market with a clear message.

    This market documents that a three bedroom rancher within R= ½ Mile of Ballston METRO is worth eight times as much as the same house on a ten times bigger lot that is within a ten minute drive of the Bealeton 7-11.

    This market documents that a house on .2 acres within the Clear Edge around Greater Warrenton is worth $200,000 more than the same house on five acres near Clevengers Corners (seven or eight miles to the west) and $100,000 more than the same house on five times as much land in a West Prince William “subdivision.” The West Prince William house is 10 miles closer to the centroid of jobs in the National Capital Subregion but is not convenient to most of the other things that citizens want to live near.

    (NB: The numbers used here were documented in April 2003 and have not yet been recalibrated to reflect the last 2 ½ years of rapid escalation because of the equally dramatic readjustment that are likely to occur over the next year.)

    These same market forces have put a premium on houses in Planned New Communities with densities of at least 10 persons per acre and a balance of jobs / houses / services / recreation / amenity as compared with the same house by the same builder in scattered subdivisions. This has been the case for four decades. We summarized these locational variations in “The $100,000 Difference” section of “The Shape of Loudoun County’s Future” which was widely circulated prior to the 1999 election in Loudoun County.

    The same forces work at higher densities. Dwellings in isolated I-395 Condo Canyon projects would be worth much more if the were adjacent to Georgetown, Old Town, Reston Town Center or even Shirlington Village Center.

    The numbers change but the relative differences do not. Citizens will pay more for accessible places to live, work and seek services.

    To create functional settlement patterns society must fundamentally change to create more of the places where people want to be and fewer of the places they have to be because they have no choice. We outline six overarching stategies to achieve that goal in The Shape of the Future.

    The most important step toward creating functional settlement patterns is to charge the full, equitable cost of the 40 +/- location variable goods and services that make contemporary urban civilization possible. At least 96% of the households in the Untied States are urban households. When they are all paying their fair share they will sort themselves out into functional patterns and densities leaving plenty of room and few costs to be paid by those who choose derive their income from nonurban activities and to live nonurban lives.

    At SYNERGY/Planning, we call the process of creating functional places “the evolution of Balanced Communities in sustainable New Urban Regions” and the basic driving force is paying ones fair share of location variable costs. This process requires open, intelligent markets for land and buildings. The creation of these markets is a major goal of PROPERTY DYNAMICS and reflects the “The Five Critical Realities the Shape the Future” which is a Backgrounder available at http://www.baconsrebellion.com

    Of course just collecting the highest price dooryards, clusters, neighborhoods and villages together is not enough to create Balanced Communities but the market provides a place to start sorting out patterns and densities and demonstrating the the market value of accessibility.

    Also note that the free market way to lower the cost of great places is to build more of them, not to build cheaper, less desireable ones.

    Post Script: Do not come with that weak stuff about the price of well located structures being higher because they cost more to build or maintain them. How many buyers will pay builder “A” more than builder “B” for the same product because builder “A” has higher costs? That is what Adam Smiths invisable hand (aka, the market) is all about.

    Poorly located buildings (what real estate agents call “more house / building / square feet for the dollar”) are to some extent priced lower because of unwarranted and / or unintended subsidies. These subsidies are most often the result of the failure to pay the full cost of location decisions. It is also true that they are priced lower because that is all someone will pay. Few sellers price their real estate lower just because it cost them less to build or they bought it or the land upon which it sits at a firesale.

  6. […] The richer you are, the more you can afford to be an environmentalist. Whether we are talking about environmental land regulations, emission regulations, a gas tax, or any other contentious environmental issue, […]

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