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| Unaffordable by Choice |
| Written by Bill Russell | |
| 06.23.2008 | |
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As you look at markets with high home prices and low affordability, it becomes clear that they are unlike other markets. What causes these markets to have such high home prices? It cannot be labor and building supplies, since they are mobile in a nationwide market, so there is no reason to think they are the cause of isolated high home prices. The cause has to be something unique to local markets and inelastic in supply, and that cause is clearly land prices and therefore, land supply. It is frequently argued that the cause of high land prices is the lack of land available for development. People believe that large cities have already used up all the available land, so naturally new supply is limited and therefore, prices unfortunately must rise. Let’s examine this case for some of the most unaffordable markets. )) The map to the left shows the areas with urban population density in four of the top five least affordable markets in the United States, which are in northern California. The Census Bureau defines urban population density areas as those that have more than 1,000 people per square mile. The map was created from census tracts.San Francisco is the 11th most urbanized market in the US, but with only 29% of its land characterized as urban, it still has 71% of its land available for development. Santa Cruz and San Jose are only 10% urbanized. Salinas, which is the second most unaffordable market in the United States, is only 1% urbanized, meaning that 99% of its land is available for development. As you can see from the map, these four markets have plenty of rural land that could be used for development. The scarcity that is driving the high prices and killing affordability is entirely artificial. This scarcity is a choice made by politicians and by the residents of these markets. 
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