Is Government Regulation to Blame for High Home Prices?

June 20, 2006 |

Read this article that tackles the issue of how government regulation affects home prices.

The issue was raised by the following quote from the National Association of Home Builders:

"rising interest rates and high land and production costs will continue to push the cost of housing beyond the means of many American families, and a disproportionate share of the blame for today’s sky-high prices goes to misguided local government policies." emphasis added

Of course, the NAHB doesn’t specify which government policies it feels are misguided, but I would imagine that they are referring mostly to planning and zoning ordinances.  Whether or not you agree with the NAHB, it is a point worth exploring.

So, do zoning ordinances have an effect on home prices?  Of course they do.  That is why planning commissions make sure that certain zoning areas do not abut each other (i.e. you don’t want industrial areas next to residential areas).  Now the more important question is whether or not local government policies can actually cause home prices to rise too high.  This is a trickier proposition.  One could argue that in trying to make certain areas of a county or city more desirable by restricting residential development to those areas creates a scarcity that might not otherwise exist.  Scarcity increases demand, and increased demand leads to higher prices.  Of course, the reason why those areas are created is so that localities don’t experience unrestricted housing growth and end up looking like Northern Virginia. 

Is there a simple answer to the problem?  Of course not.  I am almost never a fan of increasing government regulation for the sake of consumers.  The reality is that the government’s time is usually best spent keeping consumers safe, not keeping things affordable.  In the end, real estate prices will always be determined largely by market forces.  Anyone who knows anything about markets knows that government regulation often has unintended consequences when used to control market forces.  Perhaps the unintended consequence of local government regulation has, in this case, lead to higher home prices. 

Posted by Daniel | Filed Under News 

Comments

Got something to say?





Creative Commons License