UPDATE 3-Obama unveils new fund to address US housing woes

A VERY CONCENTRATED HOUSING BUBBLE

The proposed program acknowledges the very focused geographical nature of the housing bubble in the United States, with its emphasis on California, Nevada, Florida, Arizona and Michigan.

Paul Krugman noted well before the bust, that the housing bubble was limited to only part of the US market. The difference in this “two-speed” market was restrictions on land use. Dallas Federal Reserve Bank research showed that where there was liberal land use regulation, the supply of housing was permitted to increase sufficiently to provide a vent that prevented local bubbles from occurring. Where there were significant restrictions on land use (regulatory structures variously called “compact city,” “urban containment,” “smart growth,” “growth management” and others), prices increased inordinately. The research on the impacts of such
regulation is summarized at http://demographia.com/db-dhi-econ.pdf.

The metropolitan area markets of California, Florida, Arizona and Florida, with their strong restrictions on land use, accounted for more than 70% of the pre-Lehman Brothers house value collapse. Average house value losses were more than $175,000, more than 10 times those in traditionally regulated markets such as Atlanta, Dallas-Fort Worth, Houston, Indianapolis, Kansas City and Cincinnati (see: http://demographia.com/db-ushsg2009q1.pdf). Michigan was different, where a strong economic downturn pushed prices down that had never exceeded historic norms.

If the losses in the more regulated metropolitan areas had been on the order of those in the less regulated areas, either the bubble and its burst (and the subsequent international financial crisis) might have been avoided, or, at a minimum would have been far less severe. Without the more restrictive regulations, losses of this far lower magnitude would have been expected.

In combination, the necessary and sufficient conditions for the bubble that led to the international financial crisis were more liberal loan standards and the more restrictive regulatory regimes in some major metropolitan areas of the United States. The more restrictive regulatory structures produced mortgage losses that were far too intense for the financial industry to absorb.

It is worrisome that the lesson has not been learned. Legislation proposed in Congress (such as the Boxer-Kerry and Waxman-Markey cap and trade bills and the draft transportation reauthorization bill) would attempt to force virtually universal adoption of the very kinds of restrictive land use policies that were so destructive to households, housing affordability, the economy and our ability to address the financial challenges ahead (see: http://www.newgeography.com/content/001174-congress-and-administration-take-aim-local-democracy).

Wendell Cox
Demographia, St. Louis
Visiting Professor, Conservatoire National des Arts et Metiers, Paris
Co-author, Demographia International Housing Affordability Survey
http://demographia.com/dhi.pdf

Demographia: Hogwash. Nevada and Arizona have some of the fewest land use restrictions in the country. Why didn’t the bubble hit Portland, OR which had the most? Why did it hit Las Vegas which had essentially none.

No, the correlation your describe is nonsense. It might explain a long term rise in prices. NYC and SF have high prices because of strong economies and limited available land due to geography. A Portland might get similar high prices in the future, but it doesn’t cause a temporary bubble unless the restrictions are later lifted.

The absurdity of your argument aside, in the end people still actively want to live in NYC, SF, or Portland. They are fleeing hellholes like Phoenix and Las Vegas.

Typical gov’t bs. Publicly announce help for housing during campaign stop while senate is quietly considering damage to the home loan interest deduction. No wonder no one trusts these guys anymore.

More of the jerks buying votes with tax money. We’re all paying to re-elect that idiot Reid. This government is diseased.

Mr. President, as someone who contributed to your campaign, voted for you and lives in California, please don’t do this.

California is great but expensive. As house prices have fallen, rents have started down too. Last year I negotiated an extra $2400 into my pocket by negotiating down my rent. I don’t want the market to rebound. I want it to fall further. It will make California affordable again and mean extra money for us to spend. Please stop.

WTF? Why limit this to just 5 states? This makes no sense. There are a lot of people just as upside-down in North Carolina….

Ever hear of the story of the Ant and the Grasshopper?

This is just another example of the President using the TARP money as a re-election slush-fund.

“Ever hear of the story of the Ant and the Grasshopper?”

Uh–yup!
The entitlement mantality has really torn this country up, hasn’t it? That aspect is one of the most significant causes of the great divide between conservatives and liberals – am I entitled, or do I need to work for it on my own???
Q.E.D.

Oh, BTW, wouldn’t it make sense to focus more on default rates than some fantasy bubble??? If you look at default ratres, there does not seem to be any correlation with the “concentrated bubble” theory. And, isn’t default rate a much better indicator of real need for help???