Quantity and quality determine
the cost (and ultimately, therefore, the availability) of everything
from candy bars to computers. So why is it surprising that the
same factors affect the price - and therefore availability - of
housing? And, just as wage and price controls never made consumer
goods either more affordable or more abundant, why would the imposition
of marketplace-distorting controls - such as the "smart growth"
polices touted in some quarters - make for better or more affordable
Such policies don't work - and
arguably have the opposite effect of that intended.1
While real estate and housing prices naturally tend to move upward
in high-growth areas that are perceived as desirable places to
live, it is also true that legislating scarcity via "slow
growth/smart growth" policies that forbid new development
- or which restrict new housing to larger single-family-type homes
- make matters much worse than they would otherwise have been.
This has been the result of
"slow growth/smart growth" policies in fast-developing
areas such as Northern Virginia's Fairfax and Loudoun counties.
In Loudoun County, the problem has been more extreme due to the
unprecedented growth of the past decade; its population has roughly
doubled since 1990, and the average family income is now almost
in the six-figure range.2 "Slow growth/smart growth"
policies hurriedly passed by local politicians to deal with perceived
"sprawl" and burgeoning traffic have merely driven up
the cost of existing housing - modestly priced older homes that
four or five years ago were worth $150,000 now routinely sell
for twice that3 - and put a premium on the land remaining.
New construction tends to favor $300,000 and up "McMansions"
- with even townhouses now slipping beyond the $200,000 range.4
According to government statistics,
the average new single-family home in Fairfax County had a median
market value (as of 2000) of $285,577.5 Given
annual appreciation in the 10 to 30 percent range, the median
value circa 2002 is now well over $300,000.6
Pre-existing homes in Fairfax
and Loudoun often cost significantly more - because they were
typically built on larger one-half acre or bigger lots, at a time
when the county was still fairly rural and land much cheaper.
Today, unimproved land zoned for residential development in Fairfax
and Loudoun counties can sell for between $75,000 to $120,000
or more, depending upon the location.7 It has become nearly
impossible to find a serviceable single family home in Fairfax
or Loudoun county for much less than $220,000.8
In both counties, rentals are
often just as expensive, or nearly so - if the measure is the
monthly payment. According to county data, the average rental
unit in Fairfax carries a monthly tab of $1,129;9
Loudoun mirrors this - with $900 and up rents becoming the norm.10
High average incomes - $95,000
in Fairfax, with 24.3 to 28 percent earning between $100,00 and
$149,00011 - make it possible for most residents
to afford the ever-increasing cost of housing. Modesty is out;
nine-foot ceilings and two-story foyers are in. As Gopal Ahuwalia,
research director of the National Association of Homebuilders
puts it: "People want more and more of everything" -
and builders must satisfy that demand. It's not realistic to expect
any developer to under-price new dwellings, or skimp on materials
However, the downside is that
some people - most notably recent arrivals from foreign countries
doing service-industry work - often have a tough time finding
a place to live. To manage, multiple families, or several individuals,
are sharing homes designed for single families. They're also,
in the worst cases, looking toward the government to provide relief.
The new homes being built in
America's suburban areas are typically larger than pre-existing
older homes and have more features. In the 1950s, a 1,500 square
foot home - without central air conditioning or other conveniences
that modern Americans take for granted - was considered quite
adequate; today, a 1,500 square-foot home is looked upon as "small."
The presence of such new development does tend to drive up the
cost of surrounding real estate - often to the point of making
it uneconomic for developers to build new housing in the immediate
area that isn't at least comparable in type, quality and square
However, absent restrictions
on the use of land beyond the immediate perimeter of the more
expensive new homes, it is usually still economically viable to
build smaller, more affordable homes - such as townhouse developments
But when zoning and restrictive
land-use laws effectively forbid anything but large homes with
three car garages on sizeable lots, it's easy to see why there
is an increasing dearth of more modestly priced housing in the
same geographic area.12
Builders and developers face
the same pressures as other businessmen: They must provide what
the market wants - and at market prices. Erecting 1,500 square
foot, $75,000 homes in an area that increasingly demands 3,000
square foot, $350,000 homes will quickly lead to bankruptcy court.
No builder in his right mind is going to erect "affordable"
$120,000 townhouses on one-quarter acre plots that are worth almost
as much by themselves.
The tag-team of forces - ever-rising
expectations about the type and quality of new housing and ill-conceived,
restrictive land use policies - ultimately determine the cost
of both real estate and rental property. One is natural and self-correcting;
the other a pernicious, artificial distortion of the housing marketplace
that leads to less affordable housing - not more.
Is there a solution? On the
one hand, pricing housing below market values via subsidies or
assistance programs will never be anything more than a stop-gap
that will almost of necessity lead to neglect and perhaps even
"suburban slums," as landlords and tenants lose their
property stake, and thus their motivation, to maintain and improve
these under-valued properties. Neither is it reasonable to imagine
that more affordable housing will be created by injecting artificial
scarcity into the real estate market via restrictive land-use
policies that effectively preclude all but the most expensive
"McMansions" from being built.
More government intervention,
in a nutshell, is not the solution.
If past experience is any guide,
the value of housing cannot outstrip the capacity of most potential
owners to pay for it. That means, left alone to correct itself
naturally, the housing market in fast-growing areas will in time
return to a more natural equilibrium between cost and ability
to pay as things settle out.
The government safety net can
be configured to help those who slip through the cracks - but
forcible interference with natural market mechanisms via "smart
growth/slow growth" policies won't help the majority of those
who would be able to make it, given time, without government interference.
Eric Peters is a Senior Fellow
with The National Center for Public Policy Research and an editorial
writer with The Washington Times.
1 Peter Whoriskey, "Prosperity
Feeds Housing Crunch," Washington Post, March 17, 2002.
2 "1999 Survey of Loudon Residents: Executive Summary,"
available at http://www.co.loudoun.va.us/pio/docs/survey_/1999surveyoflou/office2k/office2k.htm
on August 26, 2002.
3 "1999 Survey of Loudon Residents: Executive Summary"
and "2001 Rental Housing Complex Census Analysis," available
at http://www.co.fairfax.va.us/comm/demogrph/rentalhs.htm on August
4 "International Real Estate Digest," available at http://www.ired.com/usa/va/;
"Summary Facts: Loudon County, Virginia," available
"Greater Washington DC Web Directory: Home Price Reports,"
available at http://www.onegenesis.com/Real_Estate/Home_Price_Reports/
and "Growth Trends to 2025: Cooperative Forecasting in the
Washington Region," Washington Metropolitan Council of Governments,
Washington, DC, available at http://www.mwcog.org/hspps/growth2025.html
(all available on August 26, 2002).
5 "2001 Rental Housing Complex Census Analysis."
6 "1999 Survey of Loudon Residents: Executive Summary"
and "2001 Rental Housing Complex Census Analysis."
7 "2001 Rental Housing Complex Census Analysis."
8 "International Real Estate Digest," "Summary
Facts: Loudon County, Virginia," "Greater Washington
DC Web Directory: Home Price Reports."
and "Growth Trends to 2025: Cooperative Forecasting in the
9 "2001 Rental Housing Complex Census Analysis."
10 "1999 Survey of Loudon Residents: Executive Summary."