Want Even Higher Housing Prices?

Growth caps are for you

In medieval cities, gargantuan walls traced their way around established boundaries, providing security for all who lived inside. Today, we’d prefer to believe we’ve abandoned the notion of walled cities and we no longer feel the need to cower within stone walls. That’s what makes the discussion of growth caps, like those being considered in Chula Vista, so troubling.

The Chula Vista City Council, upset by the rapid rate of development and concerns the city could be built out by 2015 – 15 years earlier than estimated, is toying with the notion of restricting development on the east side. According to the plan’s sales pitch, this is intended to ensure that city services won’t be strained, since local government will have a meaningful role in determining the “proper” progression of development.

Alas, that’s mostly a whitewash. The idea of a growth cap may appear prudent at first blush, but it’s still a wall that establishes boundaries where none need exist.

Instead of simply walling off a city, growth caps function by partitioning off outlying areas, thus shielding them from the normal workings of the real estate market. By itself that might seem harmless, and yet like most policies that fight the market, this one hits homeowners hard – in their pocketbooks.

Since it obviously takes land to build homes, restricting the amount of land that can be developed will invariably increase the cost of any land that isn’t so regulated because land is a scarce resource. The less that’s available, the more valuable the remainder becomes.

If you’re buying a home, this might price you out of the market altogether. A growing city needs more land to build, and if it lacks the ability to grow, real estate prices will begin to spike – further than they already have. The Union-Tribune recently reported that just 11 percent of San Diego households could afford to buy a median-priced home in May, when the median price in San Diego County reached $565,030.

Chula Vista’s plan will make matters worse, much worse. That is what happened in Portland, Ore., where an even more Draconian measure – an urban growth boundary – was first established in 1979.

Planners in Portland argued exactly what the Chula Vista City Council is arguing now, that the city needed the ability to control growth and keep it manageable. However, whatever positive effects the policy might have had were completely overshadowed by its damaging effects on housing costs.

Today, Portland ranks in the bottom 10 percent of housing markets in terms of affordability. During the 1990s, the median housing cost in Portland rose by a whopping 110 percent, compared with 49 percent nationwide. And despite trying to limit growth, Portland’s traffic congestion has become the worst of any city its size.

The Chula Vista City Council is right on one front. Rapid growth creates problems that must be addressed; road improvements and new infrastructure and services are required. At the heart of the challenge is how to pay for meeting those needs. Instead of limiting housing options, the city should be working on a system so that citizens pay the real costs of services, rather than using a Byzantine funding system full of subsidies and using general tax revenue for infrastructure that should be fee-based. In the real world, the true costs of infrastructure and services includes the costs of growth.

For instance, developers should pay the costs of installing new sewers, not the public at large. Roads can be paid for by the expanded use of tolls.

Chula Vista needs to consider whether it is wise to enact controls on development during a housing crisis. It needs to consider whether it wants to be a thriving, open city, or a throwback to the closed cities of medieval Europe where citizens were forced to hide behind massive fortifications.

Owen Courrèges is a research fellow in urban and land use policy at the Reason Foundation