Do growth curbs drive up housing prices?

There's a fascinating story in The Seattle Times about a new study by UW economics professor Theo Eicher, purporting to show that the bulk of increases in housing prices in Seattle stem from the large overlay of regulations that slow down building, restrict available land, and keep adding up costs. The estimate is that these factors have added $200,000 to median price of a Seattle house from 1989 to 2006. That would be twice the impact of these factors compared to other U.S. cities, according to Eicher. That shocking figure is just about the same as the estimate of the cost of environmental and density regulations in Seattle in another study, where the figure for "right to build" on a typical lot in Seattle was put at a little over $200,000. That's a figure that goes on top of purchasing the land for residential development, toting up the costs of delay, hiring lawyers, public relations battles with the neighbors, mitigation, etc. Writing about this in The Atlantic, Virginia Postrel says that such costs in happy-to-grow cities such as Dallas are about $30,000, are generally many times higher in high-amenities cities on the West Coast, topping out at $700,000 in San Francisco. Postrel says: The Dallas model, prominent in the South and Southwest, sees a growing population as a sign of urban health. Cities liberally permit housing construction to accommodate new residents. The Los Angeles model, common on the West Coast and in the Northeast Corridor, discourages growth by limiting new housing. Instead of inviting newcomers, this approach rewards longtime residents with big capital gains and the political clout to block projects they don't like. The direct results of these strategies are predictable: cheap, plentiful housing in some places, and expensive, scarce housing in others. You might also want to read an admirably comprehensive account by Joe Follansbee of the effect of growth regulations on Seattle housing prices in the current Seattle Magazine. Here's the way anti-sprawl advocates answer the charge that restricting supply drives up prices: Academics and developers who argue that the growth boundary artificially boosts prices say it's simple supply-and-demand economics; when the supply of land is limited and demand is rising, the price of land goes up, which is reflected in the price of housing. But growth management advocates argue it's not that clear-cut. In a January 6, 2007, op-ed published in The Seattle Times, Aaron Ostrom, executive director of the Seattle-based land-use advocacy group Futurewise, and Carla Okigwe, executive director of the Housing Development Consortium, a Seattle-based trade association of nonprofit housing developers, cited a 2002 Brookings Institution review of the academic literature on a potential link between growth management and affordability. The study found that market demand, not land constraint, is the primary force behind housing prices. The review adds that growth management policies promoting open space, walkable neighborhoods and alternative ways of getting around, such as buses and trains, reduce transportation and energy costs, which offsets higher housing costs. In other words, GMA supporters discount the effect of artificial limits on land available for development, saying it's not a significant factor in prices. "I don't think we're seeing the urban growth boundary affecting land prices in Washington," says Tim Trohimovich, Futurewise's planning director. Regardless of the actual figures, Seattle is about to get more serious about trying to address the dramatically escalating costs of housing. The Middle Income Housing Alliance will be holding workshops to surface ideas for dealing with the issue, in hopes of rallying enough public support for getting changes through City Hall. It won't be easy, as each of the little regulations has a strong constituency, and homeowners eager to protect their property values will stoutly resist changes.