What role did state and municipal government play in the shortage of affordable housing? According to Randal O'Toole, a senior fellow at the Cato Institute, regional growth-management planning has been disastrous in major markets across the country.
In his recent white paper called ‘The Planning Tax: The Case Against Growth-Management Planning’ and his book ‘The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future’ (both published by the Cato Institute), O'Toole states growth-management strategies did not create their intended results – but, instead, made matters worse by limiting opportunities for new affordable housing developments.
In his report and book, O'Toole points out that, in the majority of cases, housing price-to-family income ratios rose above 3.0 shortly after growth-management laws or regulations went into effect. He estimates that the cost of growth-management planning is often greater than $100,000 per home.
O'Toole adds that the absence of growth-management planning in some regions has been a blessing, noting that none of the 18 states with the most affordable housing have passed growth-management laws. ‘The key to affordable housing is the availability of relatively unregulated vacant land for housing and other urban purposes,’ he writes in ‘The Planning Tax.’ ‘The effects of denying home builders access to such developable land appears to be an almost relentless upward push of housing prices.’
MortgageOrb spoke with O'Toole about the connection between growth-management planning and the crisis affecting today's housing market and mortgage banking industry.
Q: What role did growth-management planning play in the circumstances that led to the current subprime-fueled problems facing the housing markets?
O'Toole: Growth-management planning restricted the ability of home builders to meet the demand for new homes, particularly the kind of homes that most Americans want: single-family homes with a yard. This made housing extraordinarily expensive in California and Hawaii and expensive in Oregon, Washington, Florida and several other states. This forced many people who would have been able to buy homes at prime rates to resort to subprime mortgages. Without growth-management planning, we still might see foreclosures in Michigan, where factory jobs are declining, but the foreclosure problem in places like California and Florida would be minimal.
Q: In view of the current crisis facing the housing markets, do you believe that municipal and state governments will make a more vigorous effort to encourage the development of affordable housing?
O'Toole: There are two governmental approaches to affordable housing: the right way and the wrong way. The right way is to relax the restrictions that made housing expensive in the first place. The wrong way is to subsidize housing or require home builders to sell a certain percentage of the homes they build at below-cost prices to low- and moderate-income people. The latter method actually makes housing in general less affordable. Unfortunately, too many American cities will choose the wrong way instead of the right way.
Q: There will be a new administration in the White House in January 2009. Do you have confidence that any of the presidential candidates would be able to bring about the changes you are suggesting in this report?
O'Toole: No. For the most part, this has been a state and local issue. The federal requirements that lead states and cities to drive up housing prices are buried in the details of arcane legislation and regulations, and represent too low a priority for the administration.
Q: What role can mortgage bankers play in bringing about the changes you propose in your report?
O'Toole: Mortgage bankers should join with Realtors and home builders in opposing restrictive land-use regulation. So-called ‘smart-growth’ plans are actually very dumb, as they make housing expensive and deny the benefits of homeownership to millions of people. Mortgage bankers should oppose these plans and the legislation that enables cities and counties to write them.
Q: What has the reaction been to your report, from both the public and private sectors?
O'Toole: Planning advocates are in denial, claiming that their restrictions on supply have nothing to do with housing prices. Home builders are among the leaders in understanding the relationship between planning and housing affordability, and they have been supportive. Low-income advocates are the key: They need to oppose these restrictions if they are to be effective in making housing affordable for everyone.
