The housing markets most affected by the subprime mortgage fallout are those with the toughest land use regulations, argues Wendell Cox.
"As we know from introductory courses in economics, scarcity raises prices. In a number of metropolitan markets across the country, excessive land use policies have been adopted, such as urban growth boundaries, huge areas recently declared off-limits to development, building moratoria, confiscatory and unprecedented impact fees, and excessively large minimum lot sizes.
These policies, often referred to as "smart growth," create a scarcity of land, artificially raise the price of housing, and, again, have increased the exposure of the market to risky mortgage debt. When more liberal loan policies were implemented, metropolitan areas that had adopted these more restrictive policies lacked the resilient land markets that would have allowed the greater demand to be accommodated without inordinate increases in house prices.
A few voices in the wilderness on both sides of the political spectrum have pointed to the role of excessive land use policies in driving up housing costs. For example: Liberal economist Paul Krugman of The New York Times put most of his conservative colleagues to shame in noting that the house price bubble has been limited to metropolitan areas with strong land use regulation."