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March 07, 2005

Cut House Prices in Half- End "Lifestyle" Planning

So why are housing prices so high? This study by a number of Harvard and U-Penn professors argue it's land use regulations that restrict density.

Here's the remarkable numbers. Before 1970, American house-price rises were almost entirely caused by increases in construction costs. But since then, construction costs have actually fallen, but prices have kept on rising because cities and towns increasingly restricted the right to build new housing.

By 2000, the authors estimate that these restrictions on building were more than 40% of the price of property in 27 cities. In Manhattan, such regulatory restrictions account for 50% of the average price of an apartment.

So the insane Manhattan housing costs could be cut in half theoretically if those restrictions were removed.

Which makes sense. Land costs are insanely expensive in the City, so the cheapest way to add housing should be to add a floor to a building. In New York City, for example, they keep passing more and more restrictions on how tall residential buildings can be, essentially blocking off the cheapest "land" in the city for new housing. As gentrification of neighborhoods has increased, these restrictions have just accelerated; existing landowners or tenants in rent-controlled apartments (who are therefore immune to housing inflation) combine to preserve the "charm" of their neighborhoods at the expense of affordable housing for new residents. In the suburbs, the equivalent phenomena are rules that each house must sit on X amount of land, thereby decreasing density and blocking high-density, low-cost housing.

No serious money is going to help working families buy homes. Killing density rules is one of the most direct ways to begin making housing affordable again.

Posted by Nathan at March 7, 2005 08:34 AM