How Deregulating Real Estate Markets Can Solve America’s Shortage of Affordable Housing

The deregulation of real estate markets doesn’t just make economic sense. It is also a moral imperative.

In the early twentieth century, known as the “progressive era,” the United States embarked on a spree of regulatory projects. One such project was airline regulation, which led to the creation of the Civil Aeronautics Board (CAB). The CAB controlled entry into the market, air routes, and air fares. Fortunately, realizing the harmful consequences of CAB’s control over the market, President Jimmy Carter signed the Airline Deregulation Act, opening up market entry, air routes, and prices to competition rather than managing them by decree. Airline deregulation was an enormous success. Today, air travel is affordable enough to be accessible to the middle class and even the relatively poor.

Another regulatory project of the progressive era was to regulate telecommunications. But once again, it became clear that too much regulation was a bad thing. The Telecommunications Act of 1996 deregulated the industry. Once again, the effects were palpable and positive. Most of the poorest among us can now afford a smart phone and internet access.

Land Use Regulation

Unfortunately, many progressive era regulatory regimes remain, and are in far more labyrinthine form than originally crafted. Among them, land use regulation calls out for attention. Originally sold as a mechanism for nuisance prevention, zoning laws were quickly adapted to tackle a host of perceived ills. Today, the dominant theme of land use regulation has little to do with nuisance prevention and focuses almost exclusively on the “character” of the neighborhood – sometimes to preserve it and other times to change it.

Take, for example, the 230-page zoning ordinance in the Town of Queen Creek, Arizona where I am currently navigating the permitting process to build a home. It includes no less than 30 different zoning designations, including such arcane distinctions as residential zones where the minimum lot size may be 7,000 square feet or 9,000 square feet. If many people bothered to peruse their local zoning ordinance, they might be surprised to learn that 7,000 square foot lots were such a threat to 9,000 square foot lots.

Setting aside the arbitrariness of most zoning distinctions, the fundamental pathology of land use regulation is the belief that a sufficiently intelligent group of regulators can effectively plan real estate markets. This of course is the fundamental pathology of socialism itself. In his much-needed book, “Order Without Design,” long-time urban planner Alain Bertaud documents, and laments, the mindset held by the vast majority of urban planners: given enough control, planners can successfully create a “livable” and “sustainable” city. But Bertaud documents for real estate markets what reformers learned long ago in airline and telecommunications markets, and what most of the world learned about socialism: central planning doesn’t work. Bertaud writes:

Planners believe in norms. They happily regulate minimum lot sizes, minimum dwelling floor sizes, maximum heights of buildings, minimum street widths and so forth. However, when trying to enforce these regulations, they often run into the harsh reality of land prices. What should be done when many households cannot afford the minimum regulatory lot size because of high land prices? Planners see land prices as the main obstacle to affordability. If a government were to replace land markets with design based on norms, the major obstacle to housing affordability – and to good planning in general – would be solved. Additionally, land could be allocated in sufficient quantity to low, middle, and high-income housing on a map. To this day, this is the essence of most master plans. This, [is the] urban planner’s dream.

Bertaud goes on to recount the disastrous Chinese and Soviet experiments with socializing land. Those two nations lived the urban planners’ dream of being able to allocate and control land based solely on their designs without the pesky interference of prices. We all know the result.