The myth of land availability and affordable housing
July 23rd, 2007
In one of the very first posts on Land Use Watch, the CEO of the California Home Builders’ Association posted a now-familiar pro-development argument:
Well, I make no apologies for advocating new home construction here in the Bay Area, where the 40 percent of non-homeowners have a roughy 1 in 10 chance of finding a home they can afford.
Bray and his fellow environmental extremists have no empathy for the non-homeowning population.
That’s because they’re misanthropic. They love animals, but they hate people.
Leaving aside the other strange arguments above, builders typically argue that constraints on development of open space and farmland makes housing more expensive. They argue that the only way to bring down the price is to increase the supply of houses. And that, they argue, generally means allowing for development on open space on the fringes of cities.
But is this actually true? Will an increase in available land make housing prices come down? A new study says NO:
Increasing the supply of land available for construction would do little to bring down house prices, the Campaign to Protect Rural England has said.
According to a study for the CPRE, rising house prices are a reflection of bigger incomes and mortgage loans.
And, indeed, at the CPRE’s Web site, you can find comprehensive details of their study:
The study found that:
- it is the size, type and quality of homes built that has the greatest influence on local house prices;
- house prices are heavily influenced by the quality of the environment: new homes which improve an area create value, but homes which damage an attractive location can bring down prices [7];
- if local house prices fall following development this may reflect damage to local amenity and a decline in the quality of the neighbourhood, rather than a response to a greater supply of new homes;
- even with much higher building rates, the impact on house prices would be very small, delayed and hard to detect. Any reduction in price resulting from increasing housing supply would be swamped by other factors;
- house prices are controlled not by land supply but primarily by ability to pay;
- rising house prices reflect, notably, an era of rising incomes, greater wealth available to many buyers as deposits, and mortgage lenders offering much higher loans than was considered prudent only a few years ago;
- affordability as measured by the ratio of house prices to incomes has worsened. However, the proportion of income which first time buyers spend on mortgage repayments remains less than it was for most of the 1980s. Serious affordability problems are concentrated among those with lower incomes and little wealth.
Here is the actual study itself, in PDF format.
Related posts: Rural sprawl and the floods in England, Columbia River Gorge Commission sells out to mega-developers, Go, Guyana, Go!
5 Comments Add your own
1. Idler | July 24th, 2007 at 8:31 am
There is a degree of obfuscation here. While some of the local effects are no doubt accurately represented, prices in the overall market will inexorably be affected by the relative availability or scarcity of a commodity. There’s no getting around that.
Even the impact on prices would be “swamped” by other factors (a highly questionable proposition), the effect is real. If bidders are competing for a more limited pool of a resource, the price will be driven up.
2. Dan S | July 26th, 2007 at 11:41 am
The literature is clear that demand-side effects of Tiebout sorting are much stronger than supply.
DS
3. Peter Bray | July 26th, 2007 at 12:15 pm
Great comment Dan! For those unfamiliar, here is Wikipedia’s description of the Tiebout model:
4. Jim Labbe | October 2nd, 2007 at 12:05 pm
The biggest factor in affordability is income but the National Homebuilders Association are more interested in growing subdivisions than growing income to make communities more affordable.
Also affordability of an entire community is also a function of transportation costs… which in some communities exceed housing costs as the highest monthly household expense:
http://www.brookings.edu/metro/umi/pubs/20060127_affindex.htm
http://www.nhc.org/pdf/pub_heavy_load_10_06.pdf
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