Median home prices in growth-managed regions are typically two to four times more than those in unmanaged areas. Growth restrictions also dramatically increase home price volatility, making homeownership a riskier investment. Growth management slows regional growth, exacerbates income inequality, and particularly harms low-income families, especially minorities such as African Americans and Latinos.

 

Randal O’Toole

Cato Institute

The New Feudalism: Why States Must Repeal Growth‐​Management Laws

Growth-management laws and plans, which strictly regulate what people can and cannot do with their land in the name of controlling urban sprawl, do far more harm than good and should be repealed.

To correct the problems created by growth management, states should restrict the authority of municipal governments, especially counties, to regulate land uses. Some 13 states have growth-management laws that require local governments to attempt to contain urban growth. These laws take development rights from rural landowners and effectively create a “new feudalism” in which the government decides who gets to develop their land and how. The strictest laws are in California and Hawaii, followed by Oregon, Washington, New Jersey, and several Northeastern states.

Growth-management advocates say that their policies protect farms and open space, save energy and reduce air pollution, and reduce urban service costs. However, farms and open space hardly need saving, as the nation has an abundance of both. There are much better ways of saving energy and reducing pollution that cost less and don’t make housing unaffordable. Finally, the costs of growth management are far greater than the costs of letting people live in densities that they prefer.

As compared to the trivial or nonexistent benefits of growth management, the costs are huge. Median home prices in growth-managed regions are typically two to four times more than those in unmanaged areas. Growth restrictions also dramatically increase home price volatility, making homeownership a riskier investment. Growth management slows regional growth, exacerbates income inequality, and particularly harms low-income families, especially minorities such as African Americans and Latinos.

The key to keeping housing affordable is exactly the opposite of what growth management prescribes: minimizing the regulation of vacant lands outside of incorporated cities. Allowing developers to build on those lands in response to market demand will also discourage cities from overregulation lest they unnecessarily push development outside the city.

Introduction

Under the feudalistic system of medieval Europe the monarch owned all of the land in a country and people were allowed to use that land only at his or her sufferance and by paying an annual royalty to the monarch. Substitute “government” for “monarch” and this system still prevails in most of the world today, including much of Africa, Asia, and South America.

In the “more enlightened” parts of Europe and North America, however, a new kind of feudalism has taken hold. Under this new feudalism people may own private property, but what they can do with that property is strictly controlled by the government. The new feudalism was pioneered by Great Britain in 1947, but has since been adopted by many other European countries, Australia, New Zealand, and by several American states and Canadian provinces, most notably British Columbia, California, Florida, Hawaii, Oregon, Washington, and several Northeastern states.

The policies that restrict private property under the new feudalism are collectively known to urban planners as growth management.1 These include any policies designed to influence either where or how fast growth takes place. The most popular form of growth management today is smart growth, which focuses on limiting the expansion of urban areas and increasing population densities in areas that are already urbanized. Some older forms of growth management, which might be called slow growth, attempted to limit the expansion of urban areas while also limiting the density or growth rates of those areas.

Advocates of growth management say that it produces many benefits, including preservation of farm lands, energy savings, reduced air pollution, and lower infrastructure costs. In fact, these benefits are either imaginary or could more easily be achieved in other ways without restricting property rights.

Farm lands, for example, are extremely abundant and do not need protection from urbanization. More energy can be saved and pollution reduced at a far lower cost by making motor vehicles and buildings more energy efficient than by attempting to influence land-use patterns. The small savings in infrastructure costs from growth management also pale in comparison to the high costs of growth management.

In comparison with the dubious benefits of growth management, the costs are overwhelming. The most quantifiable cost is the effect on housing prices. Housing typically costs two to five times more in states with growth-management laws than in states without such laws. While the data are not as readily available for commercial and industrial real estate, growth management has similar effects on their prices as well.

Growth management also increases the volatility of real estate prices, leading to bubbles. In places with no growth management, real estate bubbles are so rare as to be nearly nonexistent. But most places that pass growth-management laws soon begin to experience volatile prices and bubbles: Britain has had at least three bubbles since passing its 1947 law; California has had three and is entering a fourth; and Oregon has had two and is entering a third. Increased volatility discourages homeownership by increasing the risk of purchasing a home.

By increasing real estate prices, growth management slows the growth of states and regions that have adopted it and, in turn, of the nation as a whole. While many states that have not adopted growth management have grown faster as a result of people and businesses migrating from growth-managed states, the cost of such migrations are a deadweight loss on society. As a result, the nation’s overall growth in gross domestic product is close to 10 percent lower than it would be without growth management.

Another major cost is an increase in income and wealth inequality. Indeed, much of the increase in inequality since 1968 (when American inequality was at its lowest) is due to growth management enriching existing homeowners while impoverishing new home buyers and renters.

A final major cost is unemployment. Normally, homeowners have lower unemployment rates than renters. But growth management reverses this because it can make selling a house and moving crushingly expensive. Thus, many homeowners in growth-managed regions remain unemployed rather than search for work in other parts of the country.

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