The escalating housing crisis, marked by a surge in median sales prices exceeding 30% since the onset of the pandemic, has priced millions out of the market. This predicament, however, is not solely a housing crisis, but fundamentally a land crisis. The often-overlooked factor of land scarcity, coupled with restrictive land use regulations and inflated prices, forms the crux of the issue, demanding local policy reform to unlock a sustainable solution.
The price of land, outpacing even the rapid rise of housing costs, now accounts for approximately 40% of property value nationwide, and significantly more in several metropolitan areas. In cities like San Jose and Los Angeles, land value constitutes a staggering three-quarters of property value. While other contributing factors such as construction backlogs, elevated interest rates, and the shift to remote work during the pandemic have played a role, the land crisis remains the primary driver of this affordability chasm. This crisis resonates globally, affecting developed economies like Australia, Canada, the Netherlands, and the United Kingdom, which all face similar shortages and spiraling prices. However, the varying severity of the crisis across these nations highlights the significant impact of land-centric politics and price dynamics.
The United Kingdom exemplifies the consequences of discretionary urban planning, where case-by-case decisions by urban planners and city councils empower localized interests and politicize development approvals. This system fuels lobbying by existing homeowners seeking to protect their property values, resulting in concentrated construction in less desirable, peripheral areas, further exacerbating land price inflation in prime locations. Similarly, the Netherlands grapples with its own affordability challenges due to stringent zoning regulations and environmental laws championed by established urban residents, effectively stifling new construction and preserving the status quo of high prices. The influence of land politics extends to the national level, exemplified by policies favoring large-scale investors and incentivizing multiple home ownership, which further strain affordability for average citizens.
In stark contrast, Japan offers a successful model of land management. Despite experiencing population growth in the greater Tokyo area, Japan has achieved housing affordability through simplified zoning regulations. The country’s 12 zone types, each classified by permissible nuisance levels, streamline the building approval process, circumventing lengthy procedures and fostering denser housing development where demand is highest. This approach stands in opposition to the complex and often politicized systems seen in the UK and the Netherlands.
Mirroring the UK and Netherlands, the United States struggles with convoluted land regulations and restrictive zoning policies that hinder efficient and affordable homebuilding. Some of these restrictions have roots in historical racial and demographic shifts, where existing property owners utilized land use regulations to maintain exclusionary practices, a precedent upheld by the Supreme Court in the 1920s. While upholding property rights protects existing owners, it can simultaneously create barriers to entry for others, particularly during periods of population growth or shifts in demographics. This exclusionary dynamic, coupled with local and sometimes national government policies, intensifies the affordability crisis.
The path towards a more affordable and accessible housing market lies in dismantling regulatory barriers to land use, thereby depoliticizing the development process. State and federal governments can play a crucial role by incentivizing and funding structural zoning reforms at the local level. These measures would unlock more land for construction, ease supply constraints, and ultimately stabilize the housing market, making homeownership a more achievable reality for a broader segment of the population. This reform, while complex, is essential to addressing the root cause of the housing crisis: the land crisis.
