The question that last sentence asks, of course, is: Well, what is “excessive” in land use regulation? Wendell Cox, the writer of the piece, defines “excessive” as policies that serve to reduce the amount of land that can be developed, “such as urban growth boundaries, huge areas recently declared off-limits to development, building moratoria, confiscatory and unprecedented impact fees, and excessively large minimum lot sizes.” Reducing the amount of land that can be developed creates scarcity (more demand than supply), which increases the price of not just developable land — land that could be used for housing — but existing housing as well. High and increasing housing prices are great for existing homeowners; they’re not so great for prospective buyers.
The subprime mortgage crisis still has more to do with personal finance and credit decisions than with land use decisions, as Cox points out. (The fact that both apparently were better thought out here than on the East and West coasts is why the subprime crisis has been much less of a crisis here, though not without impact.) Note that the biggest impact of the subprime crisis has been on the coasts, which are also, as Cox points out, where the most extensive use of “excessive land use controls” has been:
There are two ways to fulfill someone’s wish for owner-occupied housing — purchase an existing house, or build a new house. That gets to the subject of land-use planning in Wisconsin.
Places like California, the Northeast, the Northwest, and Florida have implemented excessive land use controls. As a result, their land use planning systems have not been able to accommodate the stronger demand created in the more profligate lending environment. At the same time, as a result of its more relaxed land regulation, much of the rest of the nation was far better able to accommodate the higher demand. This includes the high-income world's three fastest-growing metropolitan areas with a population of more than 5,000,000: Atlanta, Georgia, and Houston and Dallas-Fort Worth, Texas.
This is illustrated by developments in the nation's 50 largest metropolitan markets. Between 2000 and 2007, house prices increased an average of more than $275,000 compared to incomes (house price to household income ratio) in the 10 markets with the greatest price escalation or the greatest affordability loss. Among the second 10 markets with the greatest affordability loss, prices rose $135,000 relative to incomes. By contrast, in the markets with the least affordability loss, house prices increased only $5,000.
What the 20 markets that have lost the most affordability have in common is excessive land use regulation. … From 2000 to 2007, the gross value of the U.S. housing stock rose $5.3 trillion relative to household incomes. It is estimated that $4.4 trillion of this increase occurred in the 20 most escalating markets, all of which are characterized by excessive land use planning. In each of four markets (Los Angeles, New York, San Francisco, Washington, and Miami), the aggregate escalation above incomes was a third of a trillion dollars or more. …
If the distribution of mortgage exposure increase tracked with the increase in excess value noted above, then 83 percent is attributable to the 20 most escalating markets—again, all with restrictive land use planning or smart growth. Stated another way, if price-escalating smart growth policies had not been adopted in state capitals, county courthouses, and local planning commissions, the financial risk in the current crisis would be at least $4 trillion less.
Between terms here at Marketplace, I served for five years on the City of Ripon Plan Commission, the body charged with “matters regarding the physical development of the city, such as site development, conditional use, planned unit development, re-zoning, etc.” It was a real education for me in, for instance, seeing the fine line between improving how the city looks — where major building projects go, which uses of buildings are permitted where, how new construction on corridors into the city should look — and overregulation. One thing I learned, or perhaps had reinforced, is that many people are fans of the free market more in theory than in practice — one alderman, for some reason, seemed to get the majority of contacts from constituents disturbed about the state of a neighbor’s property, whether it was how the house looked, the neighbor’s definition of “junk” located on the property, or whatever else. Land use planning needs to strike the appropriate balance between property rights and the interests of the larger community to have it look like the community wants to look.
Ripon’s Plan Commission also approved the construction of four new subdivisions, the second through fifth subdivisions that had been built in the city in 30 to 40 years. Like a lot of small Wisconsin towns, Ripon is full of homes that are 40 or more years old. Some, like Ripon’s “painted ladies,” have high resale value; a larger group have problems by today’s standards — too small, not enough garage stalls, previous-generation electrics and plumbing, inadequate insulation, etc. With so little new home construction over the decades — due in large part, I believe, to slow-growth policies of previous city leaders — people who wanted to move to Ripon were faced with three choices: fork over a lot of money for an old but high-priced house, fork over money for a less expensive but deficient house, or don’t buy a house in Ripon (in many cases, just outside the city in the Town of Ripon). Not surprisingly given those choices, in an area that has seen huge population growth in the past 20 years, and a state that has seen consistent population growth as a whole, Ripon’s population shrank below 7,000.
Wisconsin municipalities have spent the better part of this decade creating or renovating their own master land use plans under the state’s Smart Growth law. By Jan. 1, 2010, all communities that do their own land use regulation are required to have a comprehensive plan that includes issues and opportunities; economic development; natural, agricultural and cultural resources; housing; transportation; utilities and community facilities; intergovernmental cooperation; land use; and implementation plans.
The idea is, according to the state Department of Administration, to “make land use decisions much more predictable.” Smart Growth-generated land use plans are supposed to coordinate “community activity,” understand “the past and present” while laying out “a roadmap to the future” in a “proactive rather than reactive” way, save money through showing opportunities to eliminate service duplication and promoting “intergovernmental cooperation,” preserve “local control” and “local autonomy,” promote “economic development” and “property rights” (because land use decisions will be “much more transparent and open to the public, including landowners, than prior to the law”), and protect resources.
As always, the devil is in the details, and particularly who is deciding those details. There is also the small matter of getting a developer interested in the land you’d like developed, but, to paraphrase “Field of Dreams,’ if you don’t allow it, he won’t come. The devil also is in the fact that this is an exercise in predicting and attempting to control the future, and the future stubbornly resists predicting in a lot of areas. You did not, for instance, drive a flying car to work today, and you’re not spending your next three-day getaway on Mars. Then again, you’re reading these words from a worldwide computer network on a computer sized between an attaché case and a suitcase. Your non-flying car has more computer power than found on the Apollo spaceships that flew 31 men into space and brought all of them back safely.
Virginia Postrel, author of The Future and Its Enemies, didn’t write her book about land use planning, but what she wrote applies to land use plans that “assume the very things they try to enforce: that the world is simple and easily controlled, that it changes only in predictable ways, that it can be mastered. They suppose that the planners have all the relevant information and know exactly how the world works.”
Those who focus on land use to obsessional levels (who frequently tsk-tsk at large houses on large lots) harp on the importance of density and the evils of sprawl. (And what is sprawl? As Cox says, “To paraphrase the late Premier Deng of China, whatever urban planners don’t like they call sprawl. … Sprawl is nothing more than suburbanization.”) Interestingly, Wisconsin is more dense in population per square mile than the national average — 98.8 people per square mile vs. the national average of 79.6 people per square mile. That surprises me because, even with as much development as has occurred in the past 20 years, there still are places in this state where you can find little evidence of human habitation. (I’m not referring to the one-sixth of state land owned by federal, state or local government, either.) The group Cox refers to is a subset of the group I’ve written about before that deems itself to be the appropriate arbiters of how we should live our lives, whether it’s our personal habits or our buying decisions or our lifestyle choices.
Land use planning is, let’s be honest, telling people, including future landowners, what they can and can’t do with their own property. To some extent, that’s appropriate since, even to the most radically libertarian, the effects of what someone does on his or her land don’t always stop at his or her lot line. But land use plans need to be living documents flexible enough to be changed as appropriate. For a plan to be truly comprehensive, the plan needs to allow that different people may have different ideas about the homes they’d like to live in; some prefer condominiums, some prefer the character of older homes, some prefer a more suburban and more modern setting, and some have the means to build that large house on that large lot. Land use plans should guide growth, not control it, and not limit it. Limiting growth was what “smart growth” plans accomplished on the coasts, with the unintended consequences Cox points out:
Unless those doing the land use planning decisions in Wisconsin are smarter about “smart growth” than their coastal counterparts were, one of two things could happen in Wisconsin. The next crisis of excessive land values and the resulting financial cataclysm could happen here too. Or, if bankers are smarter here than they apparently were on the coasts, people will simply be crowded out of the housing market because their strained personal finances won’t allow them to purchase overvalued homes. Given the benefits society, communities and individuals all get from home ownership, the latter isn’t desirable either.
The tragedy is that when most of these decisions were made, there was not the slightest consideration of economics — the upward pressure on house prices — or the number of households that would be denied home ownership in the years to come. Yet these local decisions played a major role in what The Economist magazine called a near global collapse.
Simply put, without smart growth, the international financial crisis that has raised so much appropriate concern would have been much less severe. Thus far, the policies of the Federal Reserve Board have failed to take notice of this important connection. Any serious effort to prevent a repeat of such destructive price volatility will require removing these destructive land use regulations that have done so much to destroy housing affordability in many markets while adding inordinately to the financial distress that is being felt around the world. Economics-challenged state and local politicians must not be permitted to steer the international economy into an iceberg.