Ever wonder why home prices are so high? Is it simply because of appreciation in real estate values? Well, at least in Seattle, Washington, there is another factor: government regulation.
Theo Eicher, an economics professor at the University of Washington, analyzed home prices from 1989 to 2006 and found that $200,000 was actually a direct result of government regulation:
Between 1989 and 2006, the median inflation-adjusted price of a Seattle house rose from $221,000 to $447,800. Fully $200,000 of that increase was the result of land-use regulations, says Theo Eicher — twice the financial impact that regulation has had on other major U.S. cities.
"In a nationwide study, it can be shown that Seattle is one of the most regulated cities and a city whose housing prices are profoundly influenced by regulations," he says.
A key regulation is the state's Growth Management Act, enacted in 1990 in response to widespread public concern that sprawl could destroy the area's unique character. To preserve it, the act promoted restrictions on where housing can be built. The result is artificial density that has driven up home prices by limiting supply, Eicher says.
If the cost of regulation in Seattle is twice that of other major cities, this still translates to an average of $100,000 in home prices due to regulations even if you don't live in Seattle.