Homebuyers in Asheville pay thousands of dollars in extra costs, thanks to the city’s aggressive growth management rules. That’s the key finding in a new Policy Report from the John Locke Foundation.
The extra costs or “planning penalty” total $13,901 for a four-bedroom, 2.5-bathroom home in Asheville. Only Wilmington ($21,675) has a higher planning penalty in North Carolina. Aggressive growth management or “smart growth” policies could raise home prices in other North Carolina cities in the future, according to the report.
“These planning policies reduce the supply of housing because builders are given less land to build on and have to go through a lengthier and costlier process to obtain permits,” said Michael Sanera, JLF Research Director and Local Government Analyst. “The demand for housing is still there, though, and with less housing available, housing prices are driven up artificially.”
Sanera and JLF research intern Joanna Grey compiled their report after sifting through data in a recent national study, “The Planning Penalty: How Smart Growth Makes Housing Unaffordable.” Economist Randal O’Toole prepared that study for his American Dream Coalition.
O’Toole’s study shows that the main effect of smart growth planning is “to create an artificial housing shortage and make housing unaffordable to many families.” The effects are most pronounced in other states, including California and Oregon. The planning penalty hurts mostly low- and middle-income families who are priced out of the housing market and the American Dream of homeownership.
Local governments cannot point to smart-growth policies as an effective way to limit the costs of sprawl, O’Toole said. “The most widely recognized report on the costs of sprawl estimates that low-density development adds $11,000 in urban-service costs per new home,” he said. “This is a pittance compared to the tens to hundreds of thousands of dollars that smart-growth planning has added to the cost of virtually every home in more than 100 metropolitan areas.”
Now restrictive land use policies are playing an increasing role in North Carolina’s housing market, according to the JLF report. “The hallmark of smart growth planning is to use governmental restrictions to force more and more families into high density housing, drastically reducing the availability of single-family homes,” Sanera said.
“There are multiple ways to implement such planning,” he added, “but the most widely used are urban-growth boundaries, requiring greenbelts and minimum open-space requirements, building design codes, historic preservation, limiting building permits, lengthy permitting processes, impact fees, and inclusionary zoning.”
Each restriction helps reduce the supply of housing, Sanera said. “The demand for housing is still there, though, and with less housing available, housing prices are driven up artificially.”
Nationally, higher housing prices have limited options for middle- and low-income families. That has a negative impact on the homeownership rate, according to the report.
O’Toole used a number of methods to calculate the “planning penalty” for cities across the country. His main tool was a number called the home value-to-family income ratio. That’s the number you get when you divide a community’s median-home value by the median-family income.
A community with a median-home value of $100,000 and a median-family income of $50,000 has a home value-to-family income ratio of 2.0. The national average is 2.24.
Smart growth restrictions increase that ratio, according to O’Toole’s report. He estimates that planning restrictions overprice homes by more than 20 percent. In 2005 alone, the restrictions added at least $275 billion to the cost of owner-occupied homes across the country.
O’Toole says smart growth policies in Asheville have overpriced homes there by 25 percent. In Wilmington, the figure is 27 percent.
He found no significant planning penalty in other North Carolina cities. But researchers warn that cities such as Raleigh, Charlotte, and Greensboro are considering impact fees and other restrictions that would lead to a significant “planning penalty.”
“If other North Carolina cities follow Asheville and Wilmington, they should expect the same result, rapidly increasing housing prices that quickly outstrip family income,” Sanera said. “This result hurts low- and middle-income families the most.”
Planning penalties are much higher in some other sections of the country. Southern states have traditionally implemented fewer smart growth restrictions, Sanera said. “North Carolina is slowly headed in the direction of California, the Northwest, and the East Coast, instead of the rest of the South.”
Local planning restrictions will have long-term consequences, Sanera warns. “Families will be faced with higher housing prices, which in turn will price low and middle-income buyers out of the market,” he said. “Our homeownership rates will decrease and make the American Dream a thing of the past.”
Michael Sanera and Joanna Grey’s Policy report, “Penalty of Planning,” is at the Locke Foundation’s web site. For more information, please contact Michael Sanera at (919) 828-3876 or firstname.lastname@example.org. To arrange an interview, contact JLF communications director Mitch Kokai at (919) 306-8736 or email@example.com.