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25 Regulation 24 (2002-2003)
Zoning's Steep Price

handle is hein.journals/rcatorbg25 and id is 174 raw text is: Zoning's Steep Price By EDWARD GLAESER Harvard University AND JOSEPH GYOURKO University of Pennsylvania CHORUS OF VOICES APPEARS TO proclaim unanimously that America is in the midst of an affordable housing cri- sis. In his introduction to a Housing and Urban Development report in March of 2000, then-secretary Andrew Cuomo asserted the existence of such a crisis, and he repeatedly cited it to justify aggressive requests for fund- ing. Numerous advocacy groups share Cuomo's view; in the words of the Housing Assistance Council, The federal gov- ernment should commit io a comprehensive strategy for com- bating the housing affordability crisis in rural America. Home- construction trade associations agree; the National Association of Home Builders asserts, America is facing a silent housing affordability crisis. Adds the National Association of Realtors, There is a continuing, growing crisis in housing affordability and homeownership that is gripping our nation. (See The Fall and Rise of Public Housing, Summer 2002.) Does the United States really face a housing affordability cri- sis? Are home prices high throughout the country, or are there just a few places where they have become extreme? In those places that are expensive, why are house prices so high? Is sub- sidized construction a sensible approach to solving the crisis, Edward L. Glaeser is a professor of economics at Harvard University and a faculty research fellow for the National Bureau of Economic Research. He also is editor of the Quarterly Journal of Economics. Glaeser can be contacted by e-mail at eglaese harvard.edu. Joseph Gyourko is the Martin Bucksbaum Professor of Real Estate and Finance at the Wharton School of Business at the University of Pennsylvania. He also is the director of the Zell/Lurie Real Estate Center at Wharton. Gyourko can be contacted by e-mail at gyoLlrklo@whairton.upiein.edi. This article is based on Glaeser and Gyourko's paper The Impact of Building Restrictions on Housing Affordability, which was written for the Federal Reserve Bank of New Yor<'s February 2002 conference Policies to Promote Housing Affordability. or would other reforms be more effective? HOUSING PRICES IN THE UNITED STATES The R.S. Means Company monitors construction costs per square foot of living area in numerous American and Canadi- an cities. Their data on construction costs include material costs, labor costs, and equipment costs for four different qual- ities of single-unit residences - economy, average, custom, and luxury. No land costs are included in their data. Table 1 shows the distribution of housing values relative to construction costs (according to Means) for the nation as a whole and for the four main census regions. The table indicates that at least half of the nation's housing is less than 40 percent more expensive than economy-grade home construction costs, or no more than 20 percent more expensive than average-grade home construction costs. It also indicates that a large share of the nation's housing has its price roughly determined by the physical costs of new construction, as most of the housing value is within 40 percent of the physical construction costs of modest-quality homes. That said, the regional breakdowns reported in Table 1 emphasize that much land in western cities looks to be relatively expensive. The data for housing prices for several major urban and sub- urban areas in 1989 and 1999 appear in Tables 2 and 3. As the tables show, there are many areas with extremely cheap hous- ing. Some central cities such as Philadelphia and Detroit have especially large fractions of housing priced at less than 90 per- cent of the structure cost, as shown in Table 2. More recent data from the 2000 Census reports that the self- reported median home value is $120,000. Sixty-three percent of single-family detached homes in America are valued at less than $150,000. Seventy-eight percent of those homes are val- 24 REGULATION FALL 2002 In the nation's tightest housing markets, land-use regulation contributes heavily to high housing costs.

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