Wendell Cox's recent study for the National Center for Policy Analysis (NCPA) on how planning may have influenced the size and scope of the housing bubble is getting well deserved press. The Wall Stree Journal recently highlighted the analysis in an article recently and a video of the core ideas can be found here. I've also previously commented on this relationship before over at Planetizen.com.
At the core of Cox's analysis is that local land-use planning has greatly restricted the supply of housing. As demand for single family housing increased, prices inevitably went up. Higher mortgages were necessary to cover higher housing costs. Eventually, household incomes couldn't support the super-size mortgages and the entire system imploded. Cox points out as evidence that 73 percent of the value "lost" from housing market deflation has been in those housing markets that have restricted housing supply the most. The difference is an average loss of $175,000 in highly restrictive markets compared to just $12,000 on average in less restrictive markets.
This line of reasoning is eminently plausible. While I would like to see a more rigorous statistical analysis, I find the arguments against Cox's position less than compelling. While restricted housing supply can't explain all foreclosure activity, the geographic diversity of the housing bubble collapse, if not the entire housing market, strongly suggests restrictive land-use planning was a major factor in limiting the economic dynamism in local housing markets necessary to forestall the worst of the housing price collapse.
My primary quibble with Wendell (and others) is the tendancy to lump all restrictive land-use policies into the general category of "Smart Growth." I think the key factor is the degree to which land development has been politicized through the approval process, not whether the intent is to shape the community into a particular form (which is the goal of Smart Growth). The limits on housing supply are implicit in the process we have chosen to review, modify, and approve land and housing development proposals, not the goals themselves. Indeed, in some cases, Smart Growth advocates--those favoring higher densities and mixed uses--have streamlined the approval process for those types of development, allowing markets to become more dynamic. While not the market-driven alternative we (free marketeers) prefer (e.g., Houston), these streamlined procedures, including form-based codes, can improve the dynamism of housing markets in urban environments if they are implemented in highly restrictive planning environments like California, Oregon, Washington State, or Florida.
Hopefully, we'll have more to say about this at Reason Foundation in the coming months. Until then, great job Wendell Cox!