Magazine article American Banker

Safety Net for Real Estate in Anti-Sprawl?: Boom in No-Growth Initiatives Alters Supply-Demand in Metro Markets

Magazine article American Banker

Safety Net for Real Estate in Anti-Sprawl?: Boom in No-Growth Initiatives Alters Supply-Demand in Metro Markets

Article excerpt

As debate intensifies over whether residential real estate values have become overinflated, many mortgage and housing industry players who argue against the bubble case point to places like northern Virginia as examples of why prices will not collapse anytime soon.

Officials in Loudoun County, Va., concerned about encroachment from nearby Washington, are putting the finishing touches on one of the country's toughest anti-sprawl zoning regulations. The rule, part of a comprehensive plan, would restrict growth on almost 70% of the county, allot ting 20 acres per home in the northern part of the county and 50 acres in the southern part. The current lot minimum is three acres per home.

"It is very important to protect the rural character and the environmental quality of that area -- and also to promote something different than residential development," said Charles Yudd, assistant to the county administrator.

Though the drive to control growth is just one of many factors cited for surging home values -- others include an apparently improved sense of discipline among builders and lenders, low unemployment, high property demand, and a shortage of homes for sale -- the no-growth movement is playing an increasingly large role in home prices.

In the 2000 election cycle there were 533 growth-control measures on state and local ballots, and 72.2% of them passed, according to a study by the Brookings Institution.

"The no-growth sentiment kicking through a number of major metropolitan regions is clearly making it difficult to produce housing," David O'Neill, director of land-use policy at the Urban Land Institute, in Washington, said.

Dale A. Gray, the chief executive officer of the Central Valley Association of Realtors, in Lathrop, Calif., said the growth restrictions were in part to blame for the home-price explosion in central California.

In the fourth quarter, five of the top eight cities in home-price appreciation were in California's, Central Valley, according to data from a 185-city survey by the Office of Federal Housing Enterprise Oversight.

The rapid appreciation is occurring because land is scarce in the San Francisco Bay area and people are moving to the Central Valley to buy homes, Mr. Gray said.

"These growth initiatives are only going to cause that to get worse," he said. "When the availability of product isn't there, the price of the product that is available goes up. Simple supply-and-demand."

To be sure, the run-up in home prices over the last several years -- as high as 20% to 30% in some regions -- has some worried about a crash. These players say the real estate market cannot avoid the impact of the recession forever and that home prices will soon outpace income growth. And with interest rates poised to rise, home buying will taper off and bring prices down with it, they say.

Yet most observers contacted for this article, including real estate professionals, lenders, industry representatives, and urban-planning think tanks, say the chance of a bubble bursting is remote. …

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