Why are Home Prices Soaring in Florida?

According to the Orlando Sentinel, home prices are soaring in many of Florida’s major metropolitan areas:

Home prices in most major Florida metro areas are rising faster than in other U.S cities, driven by population growth, record-low interest rates and investor speculation that have triggered bidding wars. The state captured eight of the top 10 spots in a report released Thursday by the National Association of Realtors that ranked price changes in 136 metro areas. It was Florida’s best showing ever. Bradenton led the nation in price growth with a 45.6 percent increase in median home price, to $275,100, between the first quarters of 2004 and 2005. Orlando ranked eighth with a 28.7 percent gain, to $194,400. The median price actually is higher in the core Orange-Seminole county area, where it hit $204,500 in March. And for the first time, the median home price in Orlando exceeds the national figure of $188,800. Across Central Florida, the increases have shown no sign of slowing, with the inventory of available homes dipping to record lows. Realtors talk of houses selling in days, rather than weeks or months.

While population trends, interest rates, and speculative forces may indeed be important drivers of rising home prices in Florida, the article (not surprisingly) makes no mention of another possible culprit: land use regulation under Florida’s statewide Growth Management Act. A 2001 Reason study found that:

Evidence on housing-price trends and comprehensive planning in Florida confirms [that] growth-management regulations increased median single-family home sale prices on a statewide level in the period immediately following their implementation. This relationship is evident using 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. Moreover, the effects are sufficiently large to reverse trends in housing affordability in Florida. While not definitive, housing price trends in 20 Florida metropolitan areas suggested that Florida’s growth management laws may have added as much as 20 percent to the rising cost of housing. On a statewide level, these effects could have reversed trends that lowered housing affordability during the 1990s.

This study is but one piece of a large and growing body of research that points to a significant regulatory influence on home prices and housing affordability. As my colleague Adrian Moore pointed out last week, even the U.S. Department of Housing and Urban Development has recognized that state and local policies can drive up the cost of housing. See their Regulatory Barriers Clearinghouse for more info on this topic. So while the Sentinel article focuses on housing price drivers seemingly out of the control of public policy, they missed a golden opportunity to shed light on one key area in which public policy — specifically, growth management regulations — does influence housing price appreciation.