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cost of construction. In San Diego, a quarter-acre lot adds about
$285,000 to the cost of the house itself, in New York City the
same size lot adds about $350,000, and in San Francisco nearly
$700,000.
Naturally, the higher the cost of a given amount of land, the
greater the tendency to reduce the amount of land per house. In
the case of apartment buildings, the tendency would be to build
taller buildings, so as to increase the amount of rental income
without increasing the cost of the land on which the building sits.
However, the same political tendencies which produce horizontal
restrictions on land use can also produce vertical restrictions, lim-
iting how tall buildings can be built, as well as prescribing how
102 APPLIED ECONOMICS


much land there must be around each house or apartment build-
ing. These two tendencies do not always go together, so that the
higher housing prices which both produce may or may not result
in homes packed closer together and apartment buildings rising
higher and higher. Where the law mandates an acre of land
around each house or limits the height of residential buildings to
eight stories, for example, housing costs tend to be especially
expensive.
Height restrictions on apartment buildings have other conse-
quences as well. Obviously, the shorter the buildings, the more of
them are required to house a given population. This means that
more land will be used, resulting not only in higher rents per apart-
ment, but also in a spreading out of the community, sometimes re-
ferred to as "urban sprawl," and longer commutes to work. These
longer commutes in turn result in more highway accidents, includ-
ing fatalities, so that not all the costs are purely monetary. Given
the high man-made costs of various restrictions on land use, how
and why do such restrictions occur? One reason is that many voters
simply do not think beyond stage one”that is, they do not see the
connection between land use restrictions and the various conse-
quences which unfold over time.
Another reason is that those who clearly do see the connection
may not pay those costs themselves, and may even gain financially
from laws which cost others dearly, both financially and in terms of
a reduced quality of life”or, in some cases, a shortening of life
from highway accidents. Those who already own their own homes
will see the value of their homes rise as restrictions are put on the
building of new homes. It is those who are already living in a com-
munity who vote on its laws, while newcomers are the ones con-
fronted with the higher housing prices that these restrictive laws
create. Many of the people who are hardest hit are those who can-
not afford to live in the community, even if they work there.
The Economics of Housing 103


The most severe land use restrictions are those which simply
forbid the building of any housing at all in specified areas. Such
laws are typically described politically in terms of their ostensible
goals”"open space"”rather than in terms of what they actually
do, which is ban the building of housing and other structures.
When more than half the land in San Mateo County, on the San
Francisco peninsula, is legally off-limits to housing as "open
space," it can hardly be surprising that the price of the remaining
land is higher than in places without such severe restrictions on
land use. Nor is San Mateo County unique. Such housing ban
("open space") policies are common in communities on the San
Francisco peninsula.
History tells the same story as economics. Before such laws and
policies spread through much of coastal California in the 1970s,
housing prices in that state were very similar to what they were in
the rest of the country. Afterwards, California prices for given
housing became some multiple of what they were in places with-
out such severe land use restrictions. Indeed, housing prices in
coastal California became some multiple of housing prices in that
same state s interior valleys, where such policies either did not ex-
ist or were far less severe. Particular places in other parts of the
country with land use restrictions similar to those in coastal Cali-
fornia have likewise had very high prices for homes and very high
rents for apartments.
Loudoun County, Virginia, for example, enacted laws in 2001
which restricted the building of homes to one house per 10 acres in
some places, 20 acres in others and 50 acres in still others. Accord-
ing to the Washington Posf. "The board's actions yesterday wiped
83,158 potential homes from Loudoun's plans"”no doubt ensuring
rising prices for existing homes. Outsiders who might have lived in
those tens of thousands of additional homes of course had no vote
in Loudoun County. In an earlier time, their interests might never-
104 APPLIED ECONOMICS


theless have been represented in the marketplace by landowners
whose property rights to dispose of their land as they saw fit would
have been protected by the courts. Obviously there would be more
buyers”and therefore more profits available for those existing
landowners who were prepared to sell”when developers were free
to determine how many houses they would build per acre than when
such decisions are restricted by law.
The crucial point here, however, is not the good or bad fortune
of landowners or developers, but the fact that it is the demand of
home-seekers”including apartment tenants”which enables de-
velopers to profit by supplying that demand. The real contest is be-
tween those who wish to buy homes and rent apartments in
Loudoun County, on the one hand, versus those current Loudoun
County voters who pass laws at no cost to themselves that impose
great costs on others. In short, there are two competing sets of
people who wish to use the same resources in different ways. Prop-
erty rights allow this competition to take place in the marketplace,
while court-sanctioned abridgements of property rights allow the
competition to take place through a political process in which only
one set of competitors can vote.
While property rights are often thought of as rights whose pur-
pose and effect are to protect those fortunate enough to own prop-
erty, the larger purpose is to serve the economic needs of the whole
society, including people who own no property. In the case of
housing, property rights allow the interests of people who rent
apartments to carry weight in economic competition because, al-
though they own no housing and may have modest incomes, in the
aggregate their purchasing power can exceed that of affluent resi-
dents in a community that wants to keep them out. Intermediaries
such as developers bid against the affluent residents on the basis of
the money they anticipate making from building and renting
apartments. In such a competition, mansions on large estates can
The Economics of Housing 105

be bid away and the land then broken up into smaller units, on
which more modest homes and apartment buildings can be built.
Even if many existing residents wish to maintain their commu-
nity as it is, if individual property rights are respected by the
courts, then those particular individuals who find the developers'
bids for their property to be irresistible will sell”and the remain-
ing residents will find the character of the community changing
around them, whether they resist selling or not. At this point, the
holdouts may decide to leave and seek to find the kind of commu-
nity they like somewhere else. The alternative is to forestall this
whole process before it can get under way by abridging individual
property rights through collective action to pass land use restric-
tions under such names as "open space" laws, "environmental pro-
tection" policies, or whatever other phrases have political
resonance.
Part of this process may include demonizing developers as "self-
ish" people preoccupied with making money. In reality, developers
almost never want to acquire land and build different kinds of
housing on it for their own individual use or to indulge their own
personal tastes. They are intermediaries whose actions are based
on what large numbers of other people want and are willing to pay
for. To say that the developers want to make money, as everyone
must who is not independently wealthy, is to shift the focus from
the large numbers of prospective renters and buyers of more mod-
est houses, who are the real competitors bidding against existing
affluent residents in a particular area. Nor is it clear that it is less
selfish to deny others the same right to choose what kind of hous-
ing and community they prefer as one claims for oneself.
Despite the depiction of property rights as mere protections of
those who own substantial property, it has often been the affluent
and the wealthy who have abridged property rights through the
political process, in order to keep working class and other less
106 APPLIED ECONOMICS


affluent people from coming into their communities and chang-
ing its character via the developers and the financial institutions
which supply developers with the capital to bid away land from
existing owners. The San Francisco peninsula is just one example
of the kinds of places where this pattern has emerged, beginning
in the 1970s, as courts increasingly countenanced the abrogation
of individual property rights in the name of local political control
of land use. Moreover, land use restrictions in California began to
emerge in community after community with an influx of affluent
and wealthy people into Silicon Valley and their political ascen-
dancy over working class and small business residents in those
communities.
As the development of Silicon Valley brought in more computer
software engineers and high-tech entrepreneurs who made for-
tunes during the computer boom, the political control of local
community after local community changed, as city councils and
appointed environmental commissions came more and more under
the influence or outright control of the newcomers”who then
used these institutions to ensure that other newcomers would not
be able to displace them.
Nor was this simply a matter of majority rule. Often the political
ascendancy of Silicon Valley elites and local academics and stu-
dents was based on the fact that more educated people voted more
regularly than others, and on the fact that the elections at which
land use issues were voted on were often held in the spring, rather
than in the fall, when general elections for local, state, and national
offices would bring out more of the general public. Thus, one study
concluded, one-fourth of the local population could control the
political outcomes in elections on land use issues. This tended to
be the wealthier and more educated one-fourth, who owned their
own upscale homes, rather than the apartment renters and owners
of more modest houses in these communities.
The Economics of Housing 107


Similar political processes led to similar results in some other
parts of the country. Court rulings which allowed college and uni-
versity students to vote in local elections, even though their per-
manent homes were elsewhere, provided political support for land
use restrictions under a variety of politically attractive slogans and
visions. Since some college towns were in proximity to high-tech
industries and the consulting firms and venture capitalists they at-
tracted, such coalitions could often gain control of local political
institutions, driving local housing prices far higher than prices in
most other parts of the country. That was seldom, if ever, the
avowed purposes of such people, which typically revolved around
the exaltation of the environment and the demonization of those
who would build anything on it. Meanwhile, many of these same
advocates of land use restrictions would also proclaim their con-
cern over a need for "affordable housing."
The virtual impossibility of producing much housing that ordi-
nary people could afford under severe land use restrictions led to
various token amounts of affordable housing being created, either
by government subsidies or by imposing legal requirements on pri-
vate developers to build housing to be sold or rented "below mar-
ket," as a precondition for getting permits to build at all. The
amount of "affordable housing" produced by either of these meth-
ods was of course very limited by the unwillingness of taxpayers to
pay for massive amount of subsidies and by the fact that developers
could recover their losses on "below market" housing only by in-
creasing still more the rent and home sale prices to others, who ob-
viously did not have unlimited resources either.
The kinds of people adversely affected by land use restrictions
and the rise of housing prices they could not afford include many
people that every community employs, such as school teachers,
nurses, and policemen, but who are seldom paid enough to be able
to live in the communities where they work, when those commu-
108 APPLIED ECONOMICS


nities have skyrocketing housing costs. For example, a study pub-
lished in The Economist found that the average salary of a nurse
would make a two-bedroom apartment affordable, with 30 percent
of that salary going for rent, in Dallas, Boston, or Chicago, would
almost make it affordable in Washington, but would be less than
three-quarters of what would be needed to rent such an apartment
in San Francisco.
People with children are doubly affected because, if they are
young enough to have small children, they usually have not yet
reached their peak earnings years, and having extra mouths to feed
reduces whatever resources they might otherwise have available to
pay for housing. Less affluent ethnic minorities obviously are par-
ticularly affected by very high prices for homes or apartments. All
of these groups tend to decline as a share of the population in
communities with severe land use restrictions.
The sheriff's department in Redwood City, California, has
bought a house, so that its deputies will have a place to sleep after
they have worked long hours of overtime. That is because these
deputies typically live so far from Redwood City that it would be
dangerous for them to drive home tired at night after having
worked overtime on some local law enforcement crisis. Various
schemes for providing "affordable housing" for teachers have sur-
faced in a number of communities on the San Francisco peninsula,
though these schemes seldom go beyond token numbers of hous-
ing units, for the same reasons that "affordable housing" through
subsidies are seldom adequate for dealing with the housing prob-
lems of other groups.
The black population in San Francisco declined from more
than 79,000 in 1990 to less than 61,000 in 2000, even though the
city's population as a whole grew by more than 50,000 people. In
adjacent San Mateo County, the black population fell from more
than 35,000 to less than 25,000 during the same decade, even
though the total population of this county also grew by about
The Economics of Housing 109

50,000 people. The number of children likewise declined in both
San Francisco and San Mateo County during the same decade.
All the while, people in such places speak of a need for "diversity"
and "affordable housing"”neither of which they have or are
likely to get, as their populations become whiter and older with
rising housing prices.


Population Displacement

What happens to the people who find themselves forced to move

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