Flawed study on smart growth and home pricesA recently released study (article and full report) claims that more centralized cities have lower housing costs, and therefore putting urban boundary growth controls in place should not increase housing costs, and should even lower them.
This seems to me to be another case of Mark Twain's "lies, damned lies, and statistics." Other studies have shown that cities that restrict housing supply create a sharp increase in housing costs, with Portland being a prime example. This study cleverly avoids that fact by broadly looking at 450 cities rather than just those that have and have not created supply restrictions and doing a direct comparison. How does that help? Well, it adds hundreds of old, stagnant, and declining cities in the northeast and midwest to the statistical database. Those cities were mostly developed in the pre-1950 pedestrian age, and are naturally more dense and concentrated - but also have very poor housing values. Voila, you get a statistical correlation between central city concentration and lower housing costs. The tip-off for me was the "reduced proportion of upper-priced homes" quote: if you've ever been to one of those cities, you know that you don't see many wealthy people or expensive houses.
The researchers found that increasing population in the center of an area by 10 percent reduced median housing prices by 2.7 percent. They concluded that measures to reduce sprawl and concentrate growth in the urban core tends to make fewer large homes on big lots available, pushing buyers to smaller homes on smaller lots.
"Our findings show that smart-growth policies designed to control sprawl in and of themselves do not raise housing prices in a region," said Robert Wassmer, a professor of public policy and administration at Sacramento State. He conducted the research with Michelle Baass as part of her master's thesis; the study is to appear in an upcoming issue of the Journal of Policy Analysis and Management.
"Sprawl affects the way we live," Wassmer said in a news release from the university about the research. "Sprawl has been blamed for traffic congestion, air pollution, loss of open space, and economic, racial and ethnic segregation. But sprawl also enables people to buy the bigger homes they often desire in the suburban places they view as far away from the problems of the central locations."
Many regions, including the capital through the Sacramento Area Council Of Governments and its Blue Print Project, are encouraging so-called "smart growth" approaches. Such approaches emphasize higher housing density and placing residences close to jobs and transit -- as a way to reduce sprawl and congestion. Critics complain that growth limits to protect open space force development to more expensive sites and limit the supply of new homes, driving up costs.
Wassmer and Baass looked at U.S. Census data for more than 450 urbanized areas to study the relationship between concentration of population in the urban center and housing prices. "Our evidence shows that greater centralization in an urban area results in a reduced proportion of upper-priced homes in that urban area and a lower median priced house for the entire area," Wassmer said.
But this simple correlation says nothing about cause and effect of supply and demand, which has been pretty well vetted by the economics community. It's pretty simple, folks: if you restrict supply below demand, prices will rise to bring them into balance. You can't get around the laws of economics. Ask a Russian.