Growth Mgt Reduces Housing Affordability in Florida

Florida is recognized as a national leader in the “Smart Growth” movement. The state has given housing goals a special prominence in regional and urban planning, explicitly requiring its cities to plan for a diverse range of housing needs and types. Nevertheless, despite statewide planning goals and specific programs designed to promote affordable housing, housing costs have been increasing in Florida faster than the national average. According to the National Association of Realtors, home prices in Florida exceeded the national average for the first time in 2005. Housing price increases have also outpaced income growth. Indeed, since 1994, housing price inflation has outstripped income growth by a factor of two to one. Housing affordability has suffered declining significantly after 2000. Florida’s housing opportunity indexââ?¬â??a measure created by the National Association of Homebuilders of how many households can afford the “median” home based on income and housing priceââ?¬â??has eroded sharply, particularly since 2005, falling well below the national level by 2007. While affordability nationwide was just over 10 percent lower in 2007 than it was in 1991, affordability in Florida has plummeted by more than 50 percent over the same time period and has eroded by nearly 60 percent since its peak of 80.7 in 1994. A handful of studies have examined Florida’s housing market, including one conducted by Reason Foundation in 2001. Our analysis found that statewide planning under Florida’s Growth Management Act (GMA) may have contributed as much as 20 percent to rising housing costs between 1994 and 2000. In partnership with the James Madison Institute, Reason analysts recently updated and extended the 2001 study by analyzing housing price data from 1990 to 2006. A statistical analysis of housing trends in 56 of Florida’s 67 counties found that as much as 16 percent of housing-price inflation during that time period can be attributed to planning under the state’s GMA, a result consistent with previous analysis and research. The updated evidence confirms that growth-management regulations increased median single-family home sale prices on a statewide level. This relationship becomes evident through summary data as well as more sophisticated statistical analysis that controls for factors such as changing household incomes, single-family home quality, and public policy. This should be of particular concern to policymakers and planners in Florida and elsewhere because the report found a disconnection between the goals of statewide growth-management laws that seek to ensure affordable housing for their residents and the effects of these growth-management policies when implemented. The results of the research suggest that some of the goals of Smart Growth advocates may be inconsistent with the realities of housing development. To the extent that more compact, higher-density urban development is encouraged through growth-management laws designed in ways similar to Florida’s, higher housing prices could result. First, higher density urban areas are associated with higher housing prices as more people compete for an increasingly scarce resource: land. Second, by forcing development into existing urban areas, housing development will tend to take place in fast-growing areas, propelling consumers to bid up the price of land. These problems may be compounded by the very structure of Florida’s GMA. While explicitly including goals to promote housing diversity and affordability, it imposes planning mandates that are likely to increase housing costs. Thus, there is a breach between planning goals and planning implementation. This is particularly notable in policies aimed at reducing sprawl. By encouraging higher-density development, urban planning is likely laying a foundation for increased housing prices unmatched by increases in incomes and other factors, resulting in deteriorating housing affordability. Florida’s experience under the GMA demonstrates that strong growth-management laws that tie local planning to statewide goals run the risk of further politicizing the development process, increasing transaction costs, and creating an imbalance between housing supply and demand. This disequilibrium may exist in the aggregate as well as for specific types of housing, putting upward pressure on housing prices and, ultimately, reducing housing affordability. More on this and other issues can be found in Reason Foundation’s recently released Annual Privatization Report 2008.

Samuel R. Staley, Ph.D. is a senior research fellow at Reason Foundation and managing director of the DeVoe L. Moore Center at Florida State University in Tallahassee where he teaches graduate and undergraduate courses in urban planning, regulation, and urban economics. Prior to joining Florida State, Staley was director of urban growth and land-use policy for Reason Foundation where he helped establish its urban policy program in 1997.