Jewish World Review June 1, 2005 /23 Iyar, 5765

Thomas Sowell

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Consumer Reports

Who can afford it? | "Who can afford to buy a house in this place?" my wife asked, when I read her the average prices of homes in various northern California communities.

"We certainly can't," I said. Our home has more than doubled in value since we bought it 11 years ago. We couldn't live here if we had to pay today's prices. This is not unusual on the peninsula stretching from San Francisco to Silicon Valley.

Home prices can be very misleading in this area because many — if not most — of the people living here never paid those prices. These are the prices of current home sales. They are the prices that newcomers moving in have to pay.

That fact has a lot to do with skyrocketing home prices. The people who vote on the laws which severely restrict building, create costly bureaucratic delays, and impose arbitrary planning commission notions will not have to pay a dime toward the huge costs being imposed on anyone trying to build anything in the San Francisco Bay area. Newcomers get stuck with those costs.

The biggest of these costs is the cost of the land rather than the cost of the houses themselves. The average price of homes is a million dollars in some San Francisco Bay area communities where it would be hard to find a single house that anyone would call a mansion.

Nor are there many new homes being built in these communities. Old homes are simply being bid up in price, precisely because it is either impossible or ruinously expensive to build new homes.

Unlike other places, where people trying to sell their houses usually have an asking price that they bring down somewhat in the course of negotiations with a prospective buyer, in the San Francisco Bay area the asking price is usually bid up during the competition among people who want to buy.

Someone who bought a home for $100,000 back in the 1970s may put it on sale for $700,000 today — and watch the buyers bid it up to $900,000. The average home price in San Mateo County, where it is nearly impossible to build anything, is $921,000.

There are a lot of nice middle-class homes in San Mateo County, and some rather modest homes, but very few mansions.

One of the middle-class communities in the county is Foster City, a planned community built back in the 1960s. When the first homes went on sale there in 1963, you could buy a three-bedroom house for as little as $22,000. If you wanted something bigger or more fancy, or in a more scenic location, you could still get it for under $50,000.

Today, the average price of a home in Foster City is $1.2 million.

People who wring their hands about a need for "affordable housing" seldom consider that the way to have affordable housing is to stop making it unaffordable. Foster City housing was affordable before the restrictive land use laws in this area made all housing astronomically expensive.

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Contrary to the vision of the left, it was the free market which produced affordable housing — before government intervention made housing unaffordable.

None of this is rocket science. Anyone who can understand the concept of supply and demand can understand that putting most of the land in a whole county off-limits to building will cause the price of the remaining land to rise.

It is the land, rather than the houses that are built on it, which has become astronomically expensive in places with extreme "open space" laws and other severe restriction on the use of land. In some places without such laws, a house can be bought for a fraction of what that same house would cost in parts of California.

The people who push restrictive laws and policies often try to blame everything else for high housing costs. "Overpopulation" is one such red herring. In reality, the population of San Mateo County has declined by 9,000 people in the past four years while housing prices have risen sharply.

Ironically, a consummately selfish policy of creating costs that force newcomers to pay high prices which existing homeowners will not have to pay is often wrapped in the mantle of idealism and washed down with pious expressions of hope for some way to try to create "affordable housing."

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