In cities, 'smart growth' leads to more expensive housing

"Smart growth" policies for cities and their surrounding areas may be a good idea, but it's a costly one, too, according to public policy expert Wendell Cox.

"Smart growth" policies for cities and their surrounding areas may be a good idea, but it's a costly one, too.

At least that's what St. Louis, Mo.-based public policy expert Wendell Cox says. Writing at New Geography, Cox says that smart growth policies for metropolitan areas -- that is, regulations dictating land use for the longer-term good of ensuring compact development and preventing urban sprawl -- actually lead to higher costs for new home construction.

Reviewing regulations in 11 metropolitan areas (.pdf) across the country, Cox found that  adherence to smart growth guidelines accounts for more than 20 percent of new home costs, adding $30,000 (in Minneapolis-St. Paul, Minn.) to $220,000 (in San Diego, Calif.) to a new home's sticker price.

What's more, areas of the country with the most restrictions are seeing increases to new home prices at a faster clip compared to areas with fewer such regulations.

He writes:

Urban growth boundaries, limits on the number of houses that can be built, large lot zoning and excessive development impact fees and the like are regulation strategies that increase the cost of land for building houses. These land cost increases are not the result of more rapidly rising construction costs or underlying market forces such as consumer demand.

It also complicates the financial markets, he says:

More restrictive land use land use regulation also creates obstacles to people buying houses, requiring them to devote more money to housing than necessary and increases their vulnerability to losses in the event of a financial downturn. This exposes mortgage lenders to increased risks of loan defaults. Finally, more restrictive land use regulation makes residential land development more dependent on politics, with the potential for greater influence through campaign contributions.

Why does this occur? Cox lists seven reasons why smart growth leads to higher prices:

  1. It increases underlying land costs.
  2. It increases planning and development costs.
  3. It raises financing costs.
  4. It encourages more expensive houses.
  5. It increases construction costs.
  6. It encourages concentration of market power and land banking.
  7. It encourages land and housing speculation.

According to Cox, smart growth policies cause a trade-off between affordability now and convenience in the future.

Would you pay more for a smartly-planned home?

[via Planetizen]

This post was originally published on Smartplanet.com