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Arlington County’s “Smart Growth” Isn’t Free

Members of the Arlington County Board take great pride in what they call “smart growth.” The evidence includes two vanity videos about “smart growth” -- a 52-minute long version and a shorter 11-minute version. For more evidence, search the county’s website for “smart growth,” or visit the County Manager’s webpage, which lists perhaps twenty “smart growth” and associated “sustainability” awards.

Unfortunately, there is never any mention of the cost of so-called “smart growth” to Arlington County taxpayers. Now, thanks to a new study by the international public policy consulting firm Demographia (requires Adobe), we learn the County Board’s enthrallment with “smart growth” adds almost “$75,000 to the price of a new entry level home thanks to government imposed land use regulations, according to Mike Thompson of the Thomas Jefferson Institute in an article post of how government policies increase housing prices that is posted at Bacon’s Rebellion.

Not surprisingly, such land use regulations can be an even larger burden in California where such regulations add more than $220,000 to a new house in San Diego.

Demogaphia introduces the report this way:

“For decades, tract house construction costs on the urban fringe in the United States have represented 80% or more of the advertised house price. The balance of 20% or less has been for land and regulation costs and will be referred to as the "land and regulation cost ratio." In metropolitan markets with less restrictive land use regulation, the historic 20% or less land price ratio remains in place.2 The Demographia Residential Land & Regulation Cost Index assumes a 20% expected land and regulation ratio.

“In some metropolitan markets, however, house prices have increased substantially more rapidly than in the rest of the nation. The greater increase in house prices and escalation of land costs above the historic 20% land and regulation cost ratio has occurred in metropolitan markets that have implemented more restrictive land use regulations. Urban growth boundaries, limits on the number of houses that can be
built, large lot zoning and excessive development impact fees are examples of land use regulation strategies that increase the cost of land for building houses. These land cost increases are not the result of more rapidly rising construction costs or underlying land costs factors.”

[ . . . . ]

“More restrictive land use land use regulation also creates obstacles to people buying houses, requiring them to devote more money to housing than necessary and increases their vulnerability to losses in the event of a financial downturn. This exposes mortgage lenders to increased risks of loan defaults. Finally, more restrictive land use regulation makes residential land development more political, with the potential for political contributions to make decisions more arbitrary.

“The first annual Demographia Residential Land & Regulation Cost Index estimates cost of land and regulation for new entry level houses compared to the historic norm in 11 metropolitan markets. Each of the metropolitan regions in which house prices have risen above normal have adopted more restrictive land use regulations. Conversely, in each of the metropolitan regions in which house prices have not risen above normal levels, there is less restrictive land use regulation. During much of the Post-World War II  era, all metropolitan markets had less restrictive land use regulations.”

Let’s see now. The mortgage payments would increase perhaps $375 each month due to the $75,000 increased cost of the new house from the more restrictive land use regulations, and there would be about $750 higher annual real estate property taxes due to the likely higher assessed value of the property.

While the County Board never ceases talking about affordable housing, their enthrallment with “smart growth” is making housing more unaffordable. Sounds like the Board can’t get their priorities straight! Here's how Mike Thompson describes the tradeoff in Bacon's Rebellion:

"Yet thanks to government policies, Northern Virginia is saddled with housing prices that are substantially higher than would otherwise be the case . . . That would mean more money available to buy shoes, go to a restaurant, take kids to the movies, etc.  But now that money isn’t available because it is tied up in the mortgage payments that are artificially high thanks to government regulation. Maybe the best affordable housing policy for the governments in Northern Virginia would include reducing government regulation on home construction.

"As Ronald Reagan used to say, “Government is not the answer, it is the problem.” His instincts are proven right once again."

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