New Report Says Restrictive Land-Use Rules Add Billions to Housing Costs: News Releases: The Independent Institute

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News Release
April 4, 2006

New Report Says Restrictive Land-Use Rules Add Billions to Housing Costs

Housing shortages caused by restrictive land-use planning have added hundreds of thousands of dollars to the cost of buying homes in California, says a new report from the Independent Institute, The Planning Penalty: How Smart Growth Makes Housing Unaffordable. The report estimates that planning added anywhere from $69,000 to the cost of median homes in Bakersfield to $850,000 to the cost of median homes in the San Francisco metropolitan area (including Marin and San Mateo counties).

California cities pioneered the use of urban-growth boundaries and other growth-management planning tools in the 1970s. This caused housing prices to increase much faster than incomes and by 1979, California cities that had been affordable in 1969 became some of the least affordable housing markets in the nation.

The penalties of planning are far greater than the so-called costs of sprawl, says the report. The most widely cited study of the costs of sprawl estimates that urban-service costs to low-density homes are about $11,000 more per home than to compact neighborhoods.

“How smart is ‘smart growth’ if it makes every home in a city cost $70,000 to $850,000 more so the city can save $11,000 on a few new homes?” asks the report’s author, economist Randal O’Toole, a Research Fellow at the Independent Institute. O’Toole recommends that cities set user fees and taxes to make sure new development covers its costs and let people make their own choices about where they want to live.

Statewide, the report finds that planning-induced housing shortages added $136 billion to homebuyer costs in 2005. This does not count the cost to renters or purchasers of retail, commercial, or industrial property. The planning penalties in California are almost as great as those in all other states combined.

High housing costs hurt California’s economy by causing employers to locate elsewhere and forcing workers to make long commutes to other cities with more affordable housing. Land-use restrictions are also regressive because they impose especially large burdens on low-income families while providing windfall profits for wealthy homeowners.

California’s fast-growing home prices have also attracted speculators and led to housing bubbles. When the bubble deflates, as it did previously in the early 1990s, many recent homebuyers may be left with mortgages greater than the value of their homes.

The report also criticizes government-funded open-space programs that reduce the supply of land available for housing. “The 2000 census found that 94 percent of California’s residents live on just 5 percent of the land,” says O’Toole. “Governments are abusing their power and misplacing their priorities when they create housing shortages by focusing on saving open space that is already abundant.”

The report recommends that cities leave open space protection to private conservation organizations and that they relax planning rules so that homebuilders can meet the demand for new housing. The 66-page report can be downloaded from Spreadsheets and other documents with all of the data and calculations for more than 300 metropolitan areas can be found at

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