Smart growth planning consultant (and mayor of the city of Ventura, California) Bill Fulton somewhat backhandedly acknowledged the economic relationship between more restrictive land use regulation and higher house prices (this for the second time).
In two recent blog posts, Fulton admits that more restrictive land use regulation leads to higher prices. In November, responding to our Demographia Residential Land & Regulation Cost Index, Fulton acknowledged that urban growth boundaries raise house prices “at least a bit.”. In his more recent post, Fulton places the potential regulatory addition to house prices at between zero and 20 percent.
Fulton reaches 20 percent maximum figure by comparing information from our Demographia Residential Land & Regulation Cost Index to income figures from a our recent post Personal Income in the 2000s: Top and Bottom Ten Metropolitan Areas. Fulton’s point was that house prices are higher where incomes are higher. But there was no reason for Fulton to make these tortuous calculations, since our 7th Annual Demographia Housing Affordability Survey had already provided the income adjusted data (see note). The Demographia Survey reports the Median Multiple (median house price divided by median household income) for each of the metropolitan areas.
Among the 11 metropolitan areas Fulton considers, Atlanta was the most affordable, with a Median Multiple of 2.3 as of the third quarter of 2010. Dallas-Fort Worth had a Median Multiple of 2.7. The most unaffordable metropolitan area was San Diego, with a Median Multiple of 6.2. Applying Fulton’s methodology to the income adjusted data (Median Multiple) would raise the top of his range for regulation induced house price increases to 170 percent (rather than 20 percent).
Fulton is far too conservative.
Note: Fulton’s estimate is based upon our average new house price on the urban fringe of 11 metropolitan areas as reported in the Demographia Residential Land & Regulation Cost Index. He uses our average income per capita to make his house price to income calculations. In contrast, our 7th Annual Demographia Housing Affordability Survey uses the median price for existing houses sold, all of which are included in each metropolitan area. This median house price is then divided by themedian household income.