Jewish World Review June 10, 2002 / 1 Tamuz 5762

Thomas Sowell

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Consumer Reports

An old "new vision"

http://www.NewsAndOpinion.com | Despite the fanfare of a televised speech at the National Press Club in Washington, a very old and hackneyed set of proposals was unveiled as a "new vision" for the creation of "affordable housing." The speech was by Richard Ravitch, co-chairman with former Congresswoman Susan Molinari of what is called the Millennial Housing Commission, a group making recommendations to Congress on housing policy.

These two members of the New York political establishment produced the kinds of proposals that such people have been turning out for years. "Affordable housing" for them means government-subsidized housing, and their report essentially spells out innumerable schemes by which the taxpayers can pick up part or all of the tab for tenants or home buyers.

Contrary to this political report, a recent economic and statistical analysis by Professors Edward L. Glaeser of Harvard and Joseph E. Gyourko of the Wharton School of Business of the University of Pennsylvania concludes: "America is not facing a nationwide affordable housing crisis." There are astronomical housing prices in particular places for reasons peculiar to those places. The principal reason is the price of land.

"In large areas of the country," they find, "housing costs are quite close to the cost of new construction." These areas "represent the bulk of American housing" and they are areas where "land is quite cheap."

In high-price areas, "housing is expensive because of artificial limits on construction created by the regulation of new housing." In other words, the government -- which is depicted by Molinari and Ravitch as the savior of those seeking "affordable housing" -- is in fact the very reason why housing is so unaffordable in some places, according to scholars who have actually analyzed the hard data.

What kinds of differences in housing prices are we talking about? The average home price nationwide is about $150,000 but it is $500,000 in the area extending from San Francisco to Silicon Valley, about 30 miles south of the city. Nor is this price difference due to grander homes in California. Very ordinary homes just have grand prices.

You can in fact buy magnificent homes in some parts of the country for less than rather nondescript houses in pricier California communities. A recent issue of the Wall Street Journal had an advertisement for a 4 bedroom, 6 baths home, with 4,370 square feet of space and "a screen-enclosed pool/spa," located adjacent to a golf club and country club, for $550,000. It was in Leesburg, Fla.

Meanwhile, in Palo Alto, Calif., two houses were advertised at nearly double that price -- $1,095,000 each -- and neither house had as much as 1,500 square feet of space. Nor were they located anywhere other than on an ordinary city street, and no swimming pool was mentioned in either ad.

Many things go into determining the price of housing, both homes and apartments. But, after taking numerous factors into consideration, the Harvard and Wharton professors found that the key factor was the cost of the land on which the housing was built.

Their statistical analysis indicates that a home on a quarter-acre lot in Chicago is likely to sell for about $140,000 more than its construction costs. In San Diego it sells for $285,000 more than construction costs, in New York City $350,000 more and in San Francisco nearly $700,000 more than construction costs.

"Only in particular areas, especially New York City and California, do housing prices diverge substantially from the costs of new construction," according to the study. Why the astronomical housing prices in some places? Strict zoning laws "are highly correlated with high prices," Glaeser and Gyourko find.

Long delays in getting permits to build are major factors in high housing prices. Millions of dollars can be tied up while bureaucrats diddle and environmentalists carp. Indeed, delay is one of the chief weapons of environmental extremists who don't want anything built, and who know that delays cost developers a bundle. In the end, that ends up costing home buyers and apartment tenants a bundle.

More government is not the solution. Big, intrusive government is what creates the problem.

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JWR contributor Thomas Sowell, a fellow at the Hoover Institution, is author of several books, including his latest, The Einstein Syndrome: Bright Children Who Talk Late.

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© 2002, Creators Syndicate