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The Cost of Regulation: Seen in Housing Prices

No surprise here: government action has consequences. In this case, people are being priced out of the housing market.

Forbes reports on the least affordable U.S. real estate markets in its July 23 issue.

Some of the numbers are astounding:

“For example, in the first quarter of 2001, 42.3% of homes sold in Los Angeles were available to the median earning household. But in the first quarter of 2007, only 3% of homes sold there were affordable to those households earning the median income.”

There are several factors at play, but one that cannot be ignored is the role of restrictive laws and regulations that jack up the cost of building new homes.

“A lot of it has to do with regulations and zoning,” says Robert Bruegmann, a history and urban planning professor at the University of Illinois at Chicago. “The higher cost of doing business–and the uncertainly of business–in places like California drives up home prices. The cost of building isn’t that different in Houston versus Los Angeles, yet L.A. prices are so much higher. … One of the few variables you can look at is regulatory burden.”