When Smart Growth Isn't

Today's Chronicle carried a provocative opinion piece about the high price of land use planning.  It makes a persuasive argument that restrictions such as urban-growth boundaries, regional parks, open space and restrictions on building permits are responsible for driving home prices sky-high, making homeownership in the Bay Area unaffordable for the majority of people.  This left-wing elitism keeps poor people poor, since they are consigned to the gulag of being renters and can never reap the financial benefit of equity that homeowners enjoy. Businesses choose lower cost areas in which to locate and the cost of goods go up because of high land costs for store locations.  The growth that is checked by land use controls doesn't go away; it simply moves to the urban fringe where land prices lower, causing commuters to buy further and further out, which in turn puts more cars on the roads.

But one thing in particular struck home (no pun intended):

Predictably, planners' solutions to the housing affordability problem often make the problem worse. Planners typically require that homebuilders sell or rent 15 percent of their homes at below-market rates to low-income families. The homebuilders simply pass that cost on to the buyers of the other 85 percent of the homes they sell. Existing homeowners, seeing that new homes suddenly cost more, raise the price of their homes when they sell. The result: A few people benefit and everyone else pays more.

The solution to the Bay Area's housing affordability crisis is not a few units of affordable housing, but widespread land-use deregulation that will make housing more affordable for everyone.

In 1997, I bought a condominium in a moderate income complex for first-time home buyers under the San Francisco Mayor's Office of Housing.  Properties in the development can only be sold to first-time homebuyers and the sale price is indexed to income levels.  When I bought, the indexed sale price was somewhat below market.  Today, because of the housing boom, the units are far below market. The maximum allowed sale price for a unit in my complex is less than 50 percent of an almost identical non-regulated complex across the way.  Buyers were promised a fair return on their investment, but one recent homeowner actually lost equity in his home because the indexed sale price dropped $10,000.

Indexing the sale price to income levels may have made sense in the 1980's when the program started.  Back then, income levels rose faster than they do now because of high inflation and property values were relatively low,  but today the indexed sale price bears no relation to today's housing market.  Consequently, it is almost impossible to trade up. This isn't a problem if you intend to stay where you are, but it could be a real problem for someone who needs to move because of their job or because of a new baby, since the value of their moderate income property hasn't kept up with non-regulated properties.  Consequently, many homeowners in my complex are choosing to rent their units rather than sell. This is not good for a condominium association, because lenders won't make loans to complexes where the number of renters is too high.

We've been told for so long that sprawl is a bad thing, that perhaps we've gone too far in the other direction to prevent it, something I explored in this post.  Maybe there can be too much of a good thing.

The author is Randal O'Toole who is described in the article as "a research fellow with the Independent Institute, an Oakland-based think tank, and director of the American Dream Coalition.  His recent report The Planning Penalty: How Smart Growth Makes Housing Unaffordable is available at www.independent.org". 

Comments

[Jamison]

Growing up in the Bay Area, I've just sort of come to expect I will be a life long renter (unless I find a rich husband), and while I'd like to own a home some day, even more sprawl worries me. When I was a teenager, I saw my favorite bike trail taken over by monster homes and parts of the green belt become planned communities.

I don't know much at all about the housing market or economics, but in my design work I always look for ways I can make a system encourage the right behavior and discourage the wrong (usually something a beginner would end up very confused by) without denying freedom of choice. Sometimes it's as simple as throwing up an extra confirmation screen, or making a button smaller, but it's all designed into the application.

I've wondered if it would work to take away some of the regulations and make property and other taxes more expensive as you move out from city centers, and transit corridors. Rig the system to make it more affordable for the developer to build infill housing instead of sprawling out further and they can figure out for themselves what they want to do.