Friday, January 25, 2008

Zoning, Housing Prices, and Sub-prime Lending.

Zoning goes by a lot of different names in an attempt to hide that fact that they are in fact zoning. I've heard it called "Smart Growth", "Urban Planning", "Neighborhood Protection", and I'm sure there are other names it hides behind too, but they all at their core are zoning. The most dishonest one I've heard is "Urban Renewal" because it has the exact opposite effect: It creates ghost towns where once thriving cities once stood. It is really disturbing the number of problems government creates when it hamhandedly tries to "fix" other "problems". Zoning is one such hamhanded attempt to fix a "problem", and in doing so it creates many many more.

Real Estate is fundamentally different from most other markets. There is a finite amount of real estate available. They aren't making any more of it. So when you make portions of the available real estate unavailable through land use restrictions, what would you expect to happen to the prices of the real estate that is left? It goes up of course. That means fewer buyers can afford to buy. It also means that the property taxes on the property go through the roof because it is based on the sales price of similar properties. That will further diminish the number of people who can afford to own property. This is not just for home owners, it goes for businesses too. Businesses must do what they can to reduce their fixed costs and rent is one of the biggest fixed costs they have to deal with. They must increase prices to pay those costs, and if a business out in the un-zoned suburbs can beat their price because their fixed costs are lower guess what happens to the business. It goes OUT of business.

Another effect of Zoning is the increase in the costs of housing, and this is where Sub-Prime lending comes in. It is no coincidence that cities with zoning have the highest rates of sub-prime lending foreclosures. When people who can't truly afford a house are led to believe they can, of course they are going to fail in large numbers to keep the loan out of default. This is true everywhere, but in places with zoning they get hit with a one-two punch. Not only is the cost of housing out of this world, but so are the prices of essential goods and services as well for the same reason. People who would have no problem owning a home in Houston can't even afford the rent on one in San Francisco. So of course you are going to have a large number of people in these cities filing for bankruptcy protection and losing their homes.

All of this economic devastation can be tied back to one simple thing: Zoning.

3 Comments:

Anonymous Anonymous said...

I think the problem is that people began to see homes as a quick profit instead of a long term investment.

Don

January 25, 2008 3:50 PM  
Blogger Rorschach said...

Of course they did, but the reason they did so was because the prices were going through the ceiling. The real question is why were the prices going nuts. The answer is zoning.

January 25, 2008 4:02 PM  
Anonymous Royko said...

I have long felt Zoning is the tool the Plutocracy utilizes to effectively discriminate against, paraphrasing Leona Helmsley, the "little people."

January 26, 2008 6:37 AM  

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