How Urban Planners Caused the Housing Bubble

How Urban Planners Caused the Housing Bubble

When planners make housing unaffordable, their first response is to impose “affordability mandates” on builders. Typically, such regulations require builders to sell 15 to 20 percent of their homes below cost to lowincome buyers. Far from making housing more affordable, such mandates make it less affordable as builders build fewer homes and pass the costs on to the buyers of the other 80 to 85 percent of homes. Thisin turn raises the general price of housing in the region. One econometric analysis found that such affordability mandates increased housing prices by 20 percent.
Land-use regulation can affect prices in other ways as well. A wide range of homebuilders compete for business in relatively unregulated markets, ranging from small companies that produce only a few homes each year, to medium-sized companies that produce a few hundred homes per year, to giant national companies that build thousands of homes in many different states.
Excessive regulation tends to put the small companies out of business and discourage the national companies as well. The resulting loss of competition helps keep home prices high. Portland, Oregon’s, “urban-growth boundary has really been our friend,” says one mid-sized Portland homebuilder. “It has kept the major builders out of the market.”

Randal O’Toole

Cato Policy Analysis

October 1, 2009

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