In a recent report by Freddie Mac, the relative influence of regulatory and geographic constraints on housing affordability was examined, discovering that the restrictive land use of cities and metropolitan areas have reduced affordability.
According to the GSE's September Insights report, many cities geographic constraints have had a greater impact on housing costs. And while regulatory reform can help moderate housing costs, "geographic constraints are permanent and limit the impact of regulatory relief.”
The insights also discovered that house prices are 2.4 times higher than in the non-geographically constrained group, and the house price to income ratio is twice as high. Meanwhile, increases in demand cannot produce more housing, "thus prices must adjust by a larger amount."
In addition, the homeownership rate in the geographically constrained group, which includes cities like San Francisco, New York, and Chicago, “is only 56 percent compared to 64 percent in both moderately constrained and non-geographically constrained areas.”
Sean Becketti, Chief Economist, Freddie Mac said a thought experiment can illustrate the impact of regulatory relief and the limits on that relief in a city that also is constrained by geography.
“Imagine that San Francisco's land use regulations were relaxed significantly,” Becketti said. “The ensuing reduction in house values would encourage migration to San Francisco, but the city's geographic constraints guarantee that housing would still be expensive despite the reduction in regulation.”
“And, over time, existing homeowners would find it more and more in their economic interest to lobby for the restoration of stricter regulations," Becketti added.