Interest.com has a sobering study, showing that– even at this nadir of the American housing market– the cost of housing remains stratospherically detached from actual personal incomes. The spread was found in about half of all US housing markets, including in nearly every market that contained high concentrations of dynamic industries, educated populations, and existing wealth. Not surprisingly, the disparity was most pronounced in the housing markets around Northern California, Southern California, and New York City.
This is troubling news, because it tracks a phenomenon that LT has covered, and which has been written about in depth by writers at Forbes, the Economist, and elsewhere: That is, there is a growing body of evidence that entrenched, restrictive land use policies are strangling our best cities, creating high barriers to entry in their housing markets, and excluding the very people who would most benefit from the opportunities of their labor markets. Presumably, the same policies are also dampening potential growth in the same regions by excluding a large number of potential economic participants from the local pools, and draining disproportionate shares of local moneys into non-productive real estate acquisition costs.
My fear is that that the hopeful signs that we’ve lately seen of a nascent real estate recovery could be dampened by the structural obstacles posed by a blanket of misguided legal devices that prevent the market from reaching anything like a healthy equilibrium. That is to say, we can’t have a sustained and sustainable recovery in residential real estate until the supply of real estate products begins to actually match the critical mass of demand that exists. And right now, that demand is for smaller, cheaper, and more energy-efficient units in the regions where economic opportunities exist. Instead, what we have is a massive supply of empty McMansions in car-dependent regions like suburban Phoenix, and abandoned houses in urban nightmares like Detroit and Buffalo.
The problem is that individual local land use policies, as determined by local governments, block the kinds of development that might begin to meet this demand. And the voters in a lot of communities have a vested interest in maintaining the stranglehold up to a certain point, because their home values are exaggerated by the overall shortage of units. It’s a vicious cycle, and a dangerous one if we intend to continue to place home-ownership at the center of our economic model for the US economy.