Why do more liberal cities have more expensive housing?

After providing evidence that more liberal American cities have higher-priced housing, several explanations are offered for the phenomenon:

Kolko’s theory isn’t an outlier. There is a deep literature tying liberal residents to illiberal housing policies that create affordability crunches for the middle class. In 2010, UCLA economist Matthew Kahn published a study of California cities, which found that liberal metros issued fewer new housing permits. The correlation held over time: As California cities became more liberal, he said, they built fewer homes….

“All homeowners have an incentive to stop new housing,” Kahn told me, “because if developers build too many homes, prices fall, and housing is many families’ main asset. But in cities with many Democrats and Green Party members, environmental concerns might also be a factor. The movement might be too eager to preserve the past.”

The deeper you look, the more complex the relationship between blue cities and unaffordable housing becomes. In 2008, economist Albert Saiz used satellite-generated maps to show that the most regulated housing markets tend to have geographical constraints—that is, they are built along sloping mountains, in narrow peninsulas, and against nature’s least developable real estate: the ocean. (By comparison, many conservative cities, particularly in Texas, are surrounded by flatter land.) “Democratic, high-tax metropolitan areas… tend to constrain new development more,” Saiz concluded, and “historic areas seem to be more regulated.” He also found that cities with high home values tend to have more restrictive development policies…

“Developers pursue their own self-interest,” Kahn said. “If a developer has an acre, and he thinks it should be a shopping mall, he won’t think about neighborhood charm, or historic continuity. Liberals might say that the developer acting in his own self-interest ignores certain externalities, and they’ll apply restrictions. But these restrictions [e.g. historic preservation, environmental preservation, and height ceilings] add up, across a city, even if they’re well-intentioned. The affordability issue will rear its head.”

The options presented above include: (1) fewer housing permits; (2) environmental concerns; certain geographies that limit space, particularly along coastlines; (4) high taxes and high home values and (5) generally having more restrictions. Even though these factors are likely intertwined, it seems like it would be possible to look at the individual effects even when controlling for the other factors. One issue may be the relatively small sample size as such analyses are often limited to the 100 largest metropolitan areas. Even within the 100 biggest cities, there could be very different processes at work as Boise, Richmond, and San Bernadino are #98-100.

One common theme of these findings – outside of the geography argument – involves regulation and restrictions. Regulation doesn’t necessarily have to lead to less affordable housing. Regulations could also be used to push developers to include some units of affordable housing. Yet, it is hard for communities to turn down the big real estate money that can flow in; just see the recent happenings in New York City where high-priced units are still being built at a furious pace.

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