Restrictive Land-Use Policies Could Be Paving The Way for Another Housing Bubble

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New NCPA Report Analyzes Impact of Detrimental Policies

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The recent growth in housing prices could reflect the creation of another housing bubble. If another bubble emerges, are those restrictive states prepared for another bust?

Burdensome land-use regulations could be setting up restrictive states for another housing crash, warns a new report by National Center for Policy Analysis Senior Research Fellow David Grantham and Research Associate Joshua Latshaw.

“Less land-use regulation in restrictive regulated housing markets would have likely blunted the effects of the housing bubble and the following financial crisis of 2008,” report Grantham and Latshaw. “Although experts remain divided over whether a new bubble is forming, most land-use laws remain in place.”

Locations that had previously adopted restrictive land-use policies, including Hawaii, California, Oregon, Vermont, Florida and Washington, suffered much larger losses in terms of home affordability than areas with less restrictive regulations.

If the heavily regulated markets had experienced losses comparable to the less-regulated markets, Grantham and Latshaw predict:

     -- The total value lost on home prices from the peak of the housing bubble to the start of the financial crisis would have been $620 billion, as opposed to $2.4 trillion;
     -- The average loss per home would have been $17,000 instead of $67,000;
     -- A smaller housing bubble could have allowed for the U.S. economy to avoid or severely mitigate the destructive financial crisis.

Only one restrictive land-use state – Florida – has instituted changes to its growth management policies.

“The recent growth in housing prices could reflect the creation of another housing bubble,” cautions Grantham. “If another bubble emerges, are those restrictive states prepared for another bust?”

The Housing Crash and Smart Growth: http://www.ncpa.org/pub/the-housing-crash-and-smart-growth

The National Center for Policy Analysis (NCPA) is a nonprofit, nonpartisan public policy research organization, established in 1983. We bring together the best and brightest minds to tackle the country's most difficult public policy problems — in health care, taxes, retirement, education, energy and the environment. Visit our website today for more information.

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Catherine Daniell
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