March 23, 2011

Market-based land use policies help cities survive recession

By Market-based land use policies help cities survive recession

Author: Daniel Himebaugh

Reason Foundation's new Annual Privatization Report 2010 concludes that Houston, Texas weathered the recent housing crisis better than any other major city, with housing prices declining far less than in the rest of the country.  Why did Houston survive when others struggle?  The answer lies in Houston's market-based approach to land use regulation.

While Texas cities can enact zoning, many, including Houston, do not.  As a result, "Land is unburdened [by regulation] and affordable, and the development process is predictable with relatively simple development rules, so the housing market tends to be more resilient."  In the absence of zoning, the development process begins with a presumption that development will be allowed, so developers can quickly react to changes in housing demand.  This can take years (and thousands of dollars) off of the development process.  According to the report, "[e]ven developers investing in high-rise residential towers and mixed-use projects can expect to go from land purchase to leasing space within a year."

Interestingly, the market-based approach also has the side-effect of slowing sprawl.  Reason reports that Houston's density increased by 14.3% from 2000 to 2007, faster than Portland, Phoenix, Miami, Los Angeles, and San Francisco.

Contrast Houston's system with Washington State's, where myriad growth restrictions add to the price of a typical home by as much as 28%, or $67,400, depending on location.  Yet in King County, home to Seattle, the market is still slumping, with home prices down 10.5% from last year, and declining.  Clearly, overregulation and its costs have had a hand in the recession.

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