Some Blame the Housing Bubble on Excessive Governmental Regulation

March 18, 2008 – Palm Coast, Florida – The recent housing bubble was caused by the sub-prime mortgage companies. Or was it the greedy developers. Perhaps it was rampant speculation. Some say it was driven by mortgage fraud. Others say the mortgage fraud was a result of a lack of oversight of the housing and lending sectors. Most agree that the common thread was greed; greedy buyers, greedy developers, greedy lenders, etc. A recent report by the American Enterprise Institute for Public Policy Research takes a different, albeit provocative view. Their report puts much of the blame squarely on the growth-management planning movement.

 

"For most of U.S. history," the report states, "real estate prices have tended to rise with inflation. In periods when they increase faster than that, home building activity rises, driving prices back down…..Since the U.S. is flush with land, it has generally been easy for supply to respond to higher prices, and push them back down."

 

In the 1960s and 1970s, California and Hawaii led the movement to restrict growth by requiring local governments to enact growth-management planning. This trend has since spread to many other states, including Florida. A recent Cato Institute study by scholar Randal O’Toole sheds light on the housing bubble from a different perspective. "In 2006," O’Toole reports, "the price of a median home in the 10 states that have passed laws requiring local governments to do growth-management planning was five times the median family income in those states." In contrast, a median home in the 22 states that have no growth-management regulations cost only 2.7 times the median family income.

 

To be sure, the bubble had multiple causes. It cannot be attributed to any single one. But the report states "For the long term, draconian land-use regulations must be reconsidered by local and state governments. If not, it will only be a matter of time before we experience this (the bubble) all over again."

 

What do you think the chances are that land use regulations will be eased? I say fat chance.