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Week of: July 22, 2001

Smart Growth vs. the American Dream

by F.R. Duplantier

So-called smart-growth policies may seem like a good idea to established homeowners, but for lower-income families looking to buy for the first time they can make the American Dream a hopeless fantasy.

"The nation's long-standing commitment to expanding homeownership opportunities for all Americans is facing its most serious challenge -- a series of smart- growth initiatives that are effectively pricing most new homes beyond the reach of entry-level buyers," report Wendell Cox and Ronald Utt of the Heritage Foundation. "These initiatives, which attempt to limit a community's growth and development through such regulations as growth boundaries, lower population densities, 'downzoning,' impact fees, construction prohibitions, and land set-asides, all have the effect of raising home prices in ways that have a disproportionately negative effect on lower-income buyers," Cox and Utt complain. "The result," they predict, "will be the reversal of one of America's greatest public policy successes -- a historically high rate of homeownership."

According to Cox and Utt, "Throughout U.S. history, most Americans have lived as tenants, renting a room, apartment, shack, farm, or house from a landlord. Up until the eve of World War II, America's homeownership rate never exceeded 50 percent," they emphasize. "The federal government made its first formal commitment to the goal of encouraging homeownership in 1934, when Congress enacted the National Housing Act, establishing the Federal Housing Administration (FHA), which in turn created FHA-insured mortgages. The purpose of the act," Cox and Utt explain, "was to aid in the recovery of the private housing industry by reducing the financial risk of investing in mortgages and by encouraging the adoption of a new type of mortgage instrument -- the fixed-rate, long-term, level-payment, and fully amortized mortgage."

Innovations pioneered by the FHA and postwar prosperity combined "to push America's homeownership rate to a record 55 percent in 1950," say Cox and Utt. They note that "the rate went above 60 percent in 1960 and since then has been inching its way higher to new records, reaching 67.7 percent in the third quarter of 2000."

Cox and Utt discuss ways to "achieve the same goals of quality communities and still preserve individual choice, property rights, and reliance on market-based solutions." They urge the President and Congress to "review the activities of executive branch departments and eliminate programs that undermine property rights and market-based solutions. Agencies recently exhibiting coercive anti-growth strategies," Cox and Utt contend, "include the Environmental Protection Agency, the Small Business Administration, and the Department of Justice." They charge that the EPA "has used its enforcement powers under the Clean Air Act to force some communities to limit road-building and to channel future growth into high- density forms of residential housing even though all evidence indicates that dense development yields dirtier air."

Cox and Utt advise state and local governments to "refrain from implementing coercive and costly growth control mechanisms that limit freedom of choice and raise house prices beyond the affordable range of the entry-level buyer." Instead, they recommend "reforms and remedies that encourage flexible and creative alternatives to traditional development patterns, harness the power of the competitive market, and respect property rights and individual choice."


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