Did land use laws and planning controls help cause financial crisis?

The Saint ReportInvestment, Planning and Zoning, Property Development, saintblogLeave a Comment

By P. Michael Saint,
Chairman and CEO, The Saint Consulting Group

Thomas_SowellIn his most recent book, “The Housing Boom and Bust,” economist Thomas Sowell argues that the current financial crisis was partly caused by politicians who were attempting to solve an “affordable housing” crisis, which did not really exist on a national basis.

Land use laws and attempts to protect open space, block sprawl, etc, made housing very expensive in selective markets, like Washington DC, San Francisco and Boston, he says. But most markets around the country, where there were few if any land use controls, had very affordable housing. But to solve the perceived “Crisis”, politicians from both parties forced banks to offer easy credit to people who were not otherwise qualified, causing the disaster when interest rates rose and forced many into foreclosure.

Sowell’s book brings up a seldom-debated issue: by blocking what can be built, and where it can be built, do local land use planners also raise the price of land, forcing the price of housing and other development way up?  The Law of Supply and Demand would argue that if you artificially limit supply without lowering demand, you do raise prices. Is that good? What problems will it create?

Sowell cites lots of data and examples, including a Coldwell Banker study that showed in San Jose, with severe land use constraints, the price of a single family house cost almost a $1 million compared to $155,000 for a similar house in Houston, which has no similar land use restrictions.

In their passion to protect open space, preserve historic buildings, limit encroachment on undeveloped land and control sprawl, do planners and their supporters create housing shortages? Do they examine the economic consequences of their constraints on growth? Shouldn’t they?

In his book about central economic planning, Nobel Prize Winner F.A. Hayek argued that central planning would ultimately take away individual freedom since central planning would create unintended consequences that would require additional laws and regulations to “fix”, creating still more unintended consequences, requiring still more laws and regulations to “fix.”

Are land use controls doing the same thing? Are they blocking affordable housing development, requiring government to pass other laws on credit, mortgages and rent control, in order to “fix” the problem?

P. Michael Saint is chairman and CEO of The Saint Consulting Group, email msaint@tscg.biz

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