Study Finds Growth Management Laws Reduce Housing Affordability

by Matt Kelly

A new study by Cato Institute Senior Fellow Randal O’Toole explores the history and effects of growth management in the United States. Growth-management laws, according to O’Toole, “restrict rural development in order to force most growth into the cities.” In “The New Feudalism: Why States Must Repeal Growth-Management Laws” O’Toole finds these laws increase housing prices, exacerbate price volatility, disproportionately harm minorities, and reduce national GDP by as much as 10 percent. The author concludes that states should repeal existing growth-management laws.

Most growth-management laws create a state land-use commission, which writes rules that cities and counties must follow in their planning and zoning. Hawaii became the first American state to enact growth-management in 1961. California followed in 1963. Between 1970 and 2000, eleven other states passed growth-management laws. Some cities and urban areas, like Boulder, Denver, and Minneapolis-St. Paul practice growth management by buying land or easements to form greenbelts and limiting the number of building permits issued each year. Growth-management laws in one state affect communities elsewhere, since housing markets often overlap political boundaries. O’Toole notes that “since Connecticut and New Jersey both have growth management, New York City is affected.”

Proponents argue growth-management laws are necessary to protect farm land, forests, and open spaces. Yet the US Department of Agriculture has concluded urbanization is not considered a threat to the nation’s food production. The US Forest Service says that forest acreage has actually grown 6 percent since 1920, and forests continue to grow faster than they are being cut. Open spaces are hardly in short supply, with 96 percent of the country remaining rural open space according to measures by the Census Bureau.

Due to growth-management, O’Toole estimates “around 40 percent of American housing is made artificially expensive.” Hawaii and California have the two least affordable housing markets in the country. The median price of a 2,200-square foot home in most areas with growth management is more than $400,000, while a similar home in places without growth management is between $100,000 and $200,000. Industrial, commercial, retail, and other real estate are also more expensive. This difference isn’t likely due to greater demand in areas with growth management, since states without it have actually seen faster population and GDP growth in recent decades.

Growth-management laws also create volatility that impacts the macro-economy. Cities with growth-management laws had the most inflated housing bubbles in the mid-2000s, and the biggest declines afterward, he writes. O’Toole boldly concludes, “It is fair to say that the 2008 crash can ultimately be traced to the volatility caused by growth-management planning.”

Growth-management laws even contribute to income inequality. “It may be no coincidence that American inequality reached its lowest level in 1968, before urban areas outside of Hawaii adopted growth management plans.” Low-income families are hardest hit by expensive housing, and this tends to affect minorities most. O’Toole notes African-American populations declined in cities with the strictest growth management policies as they moved elsewhere, even as those cities’ total populations increased and the total African-American population increased nationwide.

Much space in the study is devoted to Florida’s experience. Florida enacted growth management in 1985. Each local government submitted comprehensive plans to the Department of Community Affairs for approval, creating a top-down system of land-use regulation. Already in 2001, a policy brief by Jerry Anthony at the DeVoe Moore Center stated that “adoption of growth management regulations significantly raised home prices.” In 2011, Florida partially repealed these regulations, but local governments retained their own growth-control measures. So far, this partial reform alone has failed to improve affordability.

The author argues, “Growth management takes away people’s property rights in the name of controlling urban sprawl, which is in fact a non-problem.” Landowners are stuck in a kind of “new feudalism” where their choices of land use are substantially limited by government. To correct these manifold problems and improve housing affordability, O’Toole suggests the repeal of growth management laws and the bureaucracies that administer them.

For more analysis on how growth management laws effect housing affordability in Florida, see the 2007 study by DeVoe Moore Center Eminent Scholar Keith Ihlanfeldt, “The Effect of Land Use Regulation on Housing and Land Prices“, and Center director Sam Staley’s 2007 study with Leonard G. Gilroy and Sara Stedron, “Statewide Growth Management and Housing Affordability in Florida“.