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"Buildings cost a lot to construct, and taller buildings cost more per unit than smaller ones because they require more expensive materials. Lenders only want to fund the projects with the highest return, and capital is scarce, especially now. There is enough demand near the top of the income spectrum to consume all of the units that could get financing."

In the presence of extremely restrictive zoning and high demand we should expect to see mostly high-end properties being developed. In this restrictive system, where buildings only get started with political approval it allows builders to capture rents.

Per-unit costs aren't the obstacle to cheap housing, it is the restrictive zoning. The land costs in DC should bear this out.

Imagine we are talking about any other industry for a moment: If GM, Ford, and Chrysler were only allowed to build 100 cars each year, what kind of cars would we expect?

by Michael Hamilton on Jun 19, 2012 2:11 pm • link • report

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