New Report Confirms Smart Growth Raises Housing Prices

Published November 21, 2003

Over the past several years studies by Harvard University and Tufts University professors and researchers at The Heritage Foundation have found that many common smart-growth strategies raise home prices by increasing the cost of land and/or by adding impact fees. As if such policies didn’t cause enough problems for American households, smart growth now has been shown to increase the “bricks and mortar” construction costs of both residential and non-residential construction.

The report, The Jobs are Back in Town, was released by “Good Jobs First,” a Washington, DC advocacy organization. It contains a detailed appendix that classifies 155 U.S. metropolitan areas based upon their regional growth policies as either “smart growth” or “business as usual” (less-regulated growth policies). “Smart-growth” metropolitan areas are defined as having development restrictions, including urban growth boundaries, service extension limits, or green belts.

The Jobs are Back in Town finds that metropolitan areas with more restrictive (smart growth) policies had construction costs per new resident of $295,600 in the 1985 to 1995 period. This is $83,100 higher (39 percent higher) than the per new resident construction costs identified in metropolitan areas with liberal growth policies ($212,500). Because of the strong relationship between the number of new residents and the amount of new residential construction, this would imply that costs per new residence are higher in smart growth areas. Indeed, the authors themselves seem to agree, suggesting that the higher costs in smart-growth areas are “attributable to the higher costs associated with infill and redevelopment,”

But this cost penalty is just the beginning. The authors note their data source, U.S. Census construction surveys, does not include land prices or “exactions,” such as the development impact fees frequently imposed by communities seeking to restrict growth. If it had been possible to include those factors, the smart-growth cost penalty likely would have been significantly higher.

One of the principal smart-growth strategies is development impact fees, which are added to the price of new residences. In some smart-growth California areas, development impact fees exceed $50,000. Fees of $20,000 are not uncommon in other areas, such as the Virginia suburbs of Washington, DC.

The Good Jobs First research adds further evidence to the findings of Harvard researchers Edward Glaeser and Joseph Gyourko, who reported that “zoning and other land use controls play the dominant role in making housing expensive” among the nation’s metropolitan areas.

Good Jobs First also suggests the smart-growth penalty may also be attributable to “residential units of higher value” being constructed in the smart-growth areas. This “movement up-market” has been noted previously by Steven Hayward of the American Enterprise Institute at the same time many communities impose growth controls with the explicit purpose of “greenlining”— “upgrading” demographics to exclude lower-income households through higher home prices.

Finally, The Jobs are Back in Town also reports that non-residential construction commands an 11.4 percent penalty in smart-growth metropolitan areas. The authors indicate this may be due to the higher cost of intensive infill construction. It is notable that the authors cite higher costs for infill development for both residential and non-residential construction, since smart-growth advocates often associate lower costs with their policies.

None of this is good news for the household aspiring to home ownership or seeking to buy the best house possible on a limited family budget. The higher housing costs identified in the Good First Jobs report, combined with the additional impact fees and higher land prices, all conspire to deny home ownership to hundreds of thousands, if not millions of moderate-income households.

This is more than a question of living in a house versus living in an apartment. Home ownership gives access to the ladder of economic opportunity, allowing households to accumulate wealth through home equity that can be used to create new businesses, send family members to college or other uses.

At a time when there are concerns about housing affordability and greater opportunities for greater inclusion, smart growth’s housing cost penalty serves only to make the situation worse. Moreover, the non-residential smart-growth cost penalty can lead only to higher prices, leading to further quality of life deterioration for those to whom smart growth has already denied home ownership.

In what may be the ultimate irony, a stated purpose of the Goods Jobs First report was to advance, not criticize, smart growth. But the real message could not be more clear.

Wendell Cox is a senior fellow of The Heartland Institute; a consultant to public and private public policy, planning and transportation organizations; and a visiting professor at a French national university. ([email protected]). Ronald D. Utt, Ph.D. is the Herbert and Joyce Morgan Senior Research Fellow at The Heritage Foundation ([email protected]).

Note: The original version of this article incorrectly reported the per “new resident” findings as per “new residence.” (In the study itself, the findings were reported as per “new res.”) This version, posted November 25, 2003, corrects that error.