How the War on Sprawl Caused High Housing Prices
March 13, 2022 | Tags: REASON
High housing prices have reached crisis proportions in much of the country. You can blame the war on sprawl for that.
Since the 1960s, planners have convinced many state and regional governments to limit the physical spread of urban areas. They called this "growth-management planning," and the most common growth-management tool was an urban growth boundary. Outside such boundaries, development was practically forbidden.
About 99 percent of Oregon, for example, is outside of an urban growth boundary. In most of those places, families cannot build houses on their own land unless they own at least 80 acres, actually farm it, and have thereby earned $40,000–$80,000 per year (depending on soil productivity) in two of the last three years.
Hawaii passed the nation's first growth-management law in 1961. By 1970, the state had the most expensive housing market in the country. A standard measure of housing affordability is the price-to-income ratio: median home price divided by median family income. Hawaii's ratio in 1970 was more than 3, while in every other state it was 2.4 or less. California's ratio was 2.2.
In 1963, the California legislature gave cities control over what happened outside their limits. In the 1970s, a slow-growth movement prompted many cities to draw urban growth boundaries, effectively forcing all new development to happen within their boundaries. By 1980, the price-to-income ratios in many California urban areas were above 3; some were above 4.
Oregon passed a growth-management law in 1973, Florida in 1985, New Jersey in 1986, and Maryland and Washington in 1992. Housing affordability declined after all these laws were implemented.
Most New England states abandoned the county level of government, effectively turning land use regulation of county lands over to the cities. In many cases, these cities severely restricted development of land outside their boundaries. Housing prices rose, especially in Massachusetts, Rhode Island, and Connecticut.
Colorado did not pass a growth-management law, but the Denver Regional Council of Governments drew an urban growth boundary in 1997. Denver price-to-income ratios rose from 2.2 in 1990 to 3.5 in 2005. With the cooperation of county governments, a few other cities, including Fort Collins and Missoula, also adopted urban growth boundaries, making their housing more expensive as well.
In a 1975 Environmental Law article, John McClaughry (now a Reason contributing editor) called these laws and plans the "New Feudalism." While they allowed private ownership of land, he pointed out, they transferred development rights to the government.
Originally, the war on sprawl was supposed to protect farmlands. But the United States has three times as many acres of agricultural land as it actually uses for growing crops. Moreover, cropland acreage has steadily declined not because of urbanization, which covers only 3 percent of the nation's land, but because the per-acre yields of most crops have grown faster than our population.
A later justification for these rules stemmed from the energy crises of the 1970s. In 1973, the year of the first energy crisis, a book titled Compact City suggested denser cities could save energy. But the Department of Energy's more recent Buildings Energy Data Book shows that multifamily housing costs more energy to build and operate than single-family homes. According to the department's Transportation Energy Data Book, people living in dense cities drove fewer miles than people living in low-density areas. But because the former drove in more congested conditions, they used more fuel (and emitted more greenhouse gases) per capita than their low-density counterparts.
Planning advocates have blamed everything from obesity to teenage suicides on low-density suburbs. These claims are specious. A 2003 study from Smart Growth America, for example, found that suburbanites weigh a few pounds more than city residents, but it ignored a self-selection bias: Overweight people often choose to live in areas where it is easier to drive.
Most recently, planning advocates have claimed that increased density is the solution to housing affordability problems. But it was growth management that made urban areas expensive in the first place, and higher densities are positively correlated with housing costs.
Once growth boundaries are drawn, land inside the boundaries quickly becomes much more expensive. A 2017 study found that the average acre of land in many California urban areas costs more than 10 times as much as the average acre in fast-growing regions that don't practice growth management. The high cost of land makes existing housing expensive. High housing costs increase labor costs, which makes constructing new housing more expensive.
California has some of the densest and most expensive urban areas in the nation. Thanks to growth management, 95 percent of the state's 2010 population was confined to 5 percent of the state's land. The average density of California urban areas was twice the average for urban areas in the rest of the country. Median home prices averaged more than six times median family incomes, and in some cities, price-to-income ratios were above 10.
In response, planners proposed "affordable housing" in the form of mid-rise or high-rise developments. But the need for elevators and structural steel and concrete makes this "affordable" housing cost several times as much, per square foot, as single-family homes.
Testimony by California housing developer Nicholas Arenson before a San Francisco regional planning commission noted that the most affordable housing is two stories tall. Three-story condominiums and townhomes, he said, cost 30 to 50 percent more per square foot and "sell at a discount to all single-family homes." Four- to seven-story mid-rise developments cost two to four times as much per square foot and "sell at a further discount," while high-rises cost 5.5 to 7.5 times as much per square foot as single-family homes.
To make multifamily developments appear affordable, housing units generally are very small, often less than 1,000 square feet. In addition, many are subsidized with low-income housing tax credits or by other means. Cities are building or encouraging developers to build 1,000-square-foot apartments or condos that cost as much as or more than 2,200-square-foot single-family homes in places that don't have growth -management.
Many planners—and many libertarians—blame single-family zoning for high housing prices. By creating an oligopoly in housing, they say, such zoning drove up prices. But an oligopoly doesn't work unless it controls the entire supply. And for that, you need a separate set of regulations to stop new homes from appearing on the urban fringe.
Nearly every city in America except Houston has had single-family zoning for 60–110 years, and housing remains affordable in areas that don't use growth management. Home prices in Dallas, which has single-family zoning, are practically indistinguishable from those in Houston. Growth management, by contrast, makes housing expensive even without single-family zoning because it increases land, labor, and construction costs.
If you want to make housing affordable again, those growth-management rules should be your prime target. It is time to restore rural landowners' property rights and abolish the New Feudalism.