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The Housing Boom and Bust: Where Was Planning?

It was the collapse of the housing bubble that triggered the current economic crisis.  As is the case in the aftermath of many calamities finger pointing abounds. There are an ample number of would be culprits. Take your pick; The Federal Reserve for keeping interest rates too low, mortgage brokers for pushing inappropriate loans, ratings agencies for blessing dubious securities, the list goes on.  A common criticism aimed at all of these culprits is that they lacked the foresight to see the inevitable housing bust. It was the housing bubble that camouflaged all of the bad decisions.

Lance Freeman | June 5, 2009, 12pm PDT
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It was the collapse of the housing bubble that triggered the current economic crisis.  As is the case in the aftermath of many calamities finger pointing abounds. There are an ample number of would be culprits. Take your pick; The Federal Reserve for keeping interest rates too low, mortgage brokers for pushing inappropriate loans, ratings agencies for blessing dubious securities, the list goes on.  A common criticism aimed at all of these culprits is that they lacked the foresight to see the inevitable housing bust. It was the housing bubble that camouflaged all of the bad decisions.

With few exceptions planning as a profession has been notably absent from any assignment of blame.  This is in some ways odd. Perhaps more than any other profession planning is about looking toward the future and taking actions to prepare for it.  And while the aftermath of the housing bust has concentrated our minds on the world of finance, it is in local housing markets where the housing bubble started.  Moreover, in many places the bubble was accompanied and abetted by a speculative building boom.  Certainly it should be within the purview of the planning profession to identify speculative housing booms.  Isn't gauging future housing demand relative to oncoming supply a fundamental responsibility of local housing departments? Finally, a study by Glaeser, Gyourko, and Saiz suggests that the ease with which new housing can be built, something planners heavily influence, affects the trajectory of housing bubbles.  More specifically, they found that during the 1980s housing bubble places where it was easier to build for the most part escaped the big run up in housing prices.  And during the most recent housing bubble of this decade they found that the rise and crash of housing prices happened over a shorter period of time in places where the housing supply could be increased more easily.  Their findings suggest the actions of planners do affect housing bubbles.

In sum, through their projections and forecasting planners should have been among the first to recognize the risk of a housing bubble in certain housing markets.  Furthermore, many of the standard tools used by planners such as zoning and control of the permitting processes have been shown to influence the course of local housing bubbles.  These arguments point to a need among the planning profession for introspection with the regard to the role planning played or did not play in the recent housing bubble and bust.  I'd also like to hear more from local planners who may have recognized a bubble in their communities and the action they tried to take in response. 

In the aftermath of the recent housing debacle it is not only economists that should be reviewing their profession's assumptions and actions.

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