Smart Growth Policies Led to Greater Losses

Housing affordability suffers under smart growth policies. Principal smart growth policies include urban containment (such as growth boundaries and restrictions on physically developable land), large-lot zoning in urban fringe and rural areas, state aid contingent on local growth zones, house building moratoria or limits, high development fees and exactions, and mandatory regional or county planning. Indeed, the largest house price drops after the housing bubble burst occurred in the markets that experienced the greatest cost escalation, both because prices were artificially higher but also because prices in smart growth markets are more volatile, says Wendell Cox, an adjunct scholar with the National Center for Policy Analysis.

The "ground zero" markets (11 metropolitan areas in which the greatest cost increases occurred), with only 28 per cent of the owner occupied housing stock, accounted for 73 per cent of the pre-crash losses ($1.8 trillion).

Thus, much of the cause of the housing crash, which most analysts date from the Lehman Brothers bankruptcy on September 15, 2008, can be attributed to these 11 metropolitan areas.

By contrast, the 22 less restrictively regulated markets accounted for only 6 per cent ($0.16 trillion) of the pre-crash losses.

These 22 markets represented 35 per cent of the owned housing stock.

If the losses in the ground zero markets had been limited to the rate in the less restrictively regulated markets (the estimated impact of cheap credit), lenders would have lost $1.6 trillion less, says Cox.

Source: Wendell Cox, The Fall: Smart Growth Losses, New Geography, July 8, 2011.

For text: http://www.newgeography.com/content/002324-the-costs-smart-growth-revisited-a-40-year-perspective

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 19 July 2011