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While the policy responses in this article are largely appropriate, the primary driver of both the problem and solution is the private sector.

In the last real estate cycle, the best development opportunities were in the exurbs. Places like Loudoun saw the fastest price appreciation and developers built as if this trend would last forever. So, that market got saturated right around the time demand shifted toward closer-in, walkable communities. As a result, prices stagnated or went down in the exurbs where there was excess supply and a stuffed pipeline. Prices went up rapidly in walkable areas where there was a lack of development and a minimal pipeline.

Developers are now playing catch up, trying to redirect the slow moving development process toward the new demand hotspots. It doesn't help that regulatory burdens and community opposition make development a slower process in walkable areas than in greenfield locations in the exurbs. So, we're seeing a slower response to a shift in market demand than usual.

In the long run, the private sector will catch up with demand and prices will reach a truer state of equilibrium. However, in the long run, we're all dead, so it makes sense to grease the wheels of change to get to that equilibrium quicker. Of course, the nature of markets is that they will likely overshoot and eventually we'll be talking about how there's way too much supply in urban walkable places and not enough somewhere else. Thus, a new cycle is born.

by Falls Church on Dec 19, 2012 5:28 pm • linkreport

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