Government Regulation Adds Hundreds of Thousands in Housing Price

By Alex in Pictures on Feb 22, 2008 at 1:55 am

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.

The Seattle Times has the story by Elizabeth Rhodes: Link – via Scribal Terror

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Louise
Feb 22nd, 2008 at 9:05 am
Admittedly I have a knee-jerk negative reaction to “studies” that purport to prove how bad government regulation is, but in this case I am trying to restrain it. The posting here raises some immediate questions, including how are “government regulations” are defined. How many of these land-use regulations are the result of citizen demand? And when does citizen demand stop becoming part of “democratic action” and instead become part of faceless government bureaucracy? “Quality of life” regulations, especially those on a local or state level, are the direct result of citizen demand, and couldn’t be passed or maintained without citizen support. (Just try proposing a school tax hike to “improve the quality” of local education.) Quality-of-life regulations and their attendant costs are willingly chosen by the residents, at least those who vote.

One has to remember that real estate is perhaps the one big area in life where the price is truly determined by the law of supply and demand, and the final price is the result of negotiation. Why are Seattle’s housing costs so high? Because so many people want to live there. If they didn’t, it wouldn’t matter how much additional cost government regulation added, except as a brake to demand, because housing would be cheap. Obviously even the premium added by “regulation” hasn’t quelled demand.

Why do so many people want to live in Seattle? Could the quality-of-life issues that inspired the regulations be part of the reason? Removing the regulations would change the quality of life, and thus lower demand, in this model.

If you have ever bought property, you know that you will pay a premium to get the neighborhood you want. After all, what are the three most important things in real estate? (“Location, location, and location.”)

So, yes, “government regulations” may keep abattoirs, nuclear dumps, rubbish tips, open sewers, unpaved roads, deforested belts, massive above-ground parking lots, and other nuisances that cost money to regulate out of Seattle. Perhaps housing prices would be cheaper if development could proceed without limits or considerations. But would the result be what we think of when we think of “Seattle”, and would so many people want to live there? Would so many businesses want to be based there?

Would there even be a Starbucks? (Another philosophical can of worms..)
William Francis
Feb 22nd, 2008 at 3:10 pm
What’s not addressed here is what is the cost of not having those regulations? I live in San Francisco which has extraordinarily high housing costs which surely could be lowered if there were more housing stock. However, much of the area surrounding area outside of San Francisco is reserved park/open space land.

The Golden Gate National Recreation Area and Point Reyes National Seashore take up a huge area north of SF. Large portions of the peninsula south of San Francisco down through the Santa Cruz mountains into Monterey is reserved open space. Across the bay to the east of Oakland and Berkeley significant areas of the hills are open space and park lands. Surely all this reserved space drives up housing costs.

Many of those areas also contain our reservoirs for our water and sensitive/significant biological preserves. Sure, we could develop all of these and bring down housing prices but at what other intangible costs? I think they would be harder to put a dollar figure on.

I’d love to own a house here as much as anyone else but knowing that significant portions of valuable public assets are preserved is worth it.
Steohawk
Feb 22nd, 2008 at 3:25 pm
Here’s something to help the housing prices: stop allowing people to “own” raw land! Property is (to a libertarian, anyway) defined as that which has been mixed with one’s labor. By this definition, raw land CANNOT be property. Also, a person shouldn’t need to get a license from the government to build their own house. The government does NOT own the land or the people!
Jacques
Feb 22nd, 2008 at 4:28 pm
Sorry, no sale. This sounds like a neocon wet dream to me. High home prices are almost certainly caused by panic on the part of the buyer, prompted by the agent, “better hurry and make an offer, I’m hearing that another couple is going to make an offer”. Best advice I could give, having gone through this, is to make a bid of 10% below the asking price, and rely on the fact that more often than not the seller will panic and accept your bid.
Marcus
Feb 22nd, 2008 at 8:27 pm
Don’t question the northwest democrats. They know what’s best for you, along with Steve Jobs.

Actually, I’m with them on the growth management part. I live north of Seattle and traffic is so bad we have to plan our lives around it. Basically no coming home between 3 & 6PM, unless you like idling on the freeway. Even wider avoidance times on weekends.

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