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1 1 Constraints on Housing Additions Escalate Prices The owner of any vacant land on your block, or in your neighborhood, or elsewhere in your city and county cannot build on that land without the permission of those you elected to govern your town and county. Even if you own the house you live in, you cannot remodel it or tear it down and rebuild without the approval of your local government. Your home may be your castle, but how you can change it, what it can look like, and where you can build a new one are dictated by the building codes and zoning ordinances of your local jurisdiction. Your local jurisdiction produces maps comprising zones. Each zone speci- fies that what you do with your property within that zone must be in conformity with the general laws laid out in the codes and ordinances. The zoning ordinances specify details for buildings, such as the allowable density (or number of units per acre or square foot of land), the allowable maximum height, the ratio between floor area of building and area of land it will occupy, and the setback (how far back from the street), among many other specifications that apply to proposed changes to the built environment. In other words, these maps indicate how much and what type of space you can build on, whether your development or redevelopment plans conform to a list of conditions, and architectural rules. Fees are imposed by the public planning bodies that review applications for permits to build, remodel, or demolish real estate. Causes and Consequences of Housing Price Increases Since about 1965, the odds that the owners of vacant land would be allowed to build have been decreasing in the regions housing demands have been driven up by growth in employment and newcomers. And since about that same time, there have been cutbacks in federal and state expenditures for roads, utilities, drainage, and other improvements needed to make vacant land accessible so that home builders could obtain enough land to build sufficient numbers of single- and multifamily units to satisfy consumer demands for new homes. The cost of vacant land that could be approved as a site for development— on the block where you live or anywhere in your community, town, or city—has increased. Consequently, the price or rent of your home and all the other houses, apartments, and condominiums in your area has increased and has continued to increase (although during the years before the end of the past century, there were a few very brief interruptions in the progressive increases). This price escalation was particularly great between 2001 and 2007 and came to be referred to as the “housing price bubble.” When elected officials of the federal government saw housing prices climbing at a much faster rate than consumer incomes, they became concerned about the slowdown in the rates of homeownership. Fewer households could afford to make that first purchase that would make them homeowners. To counter the potential drop in the number of first-time home buyers, the federal government began chopping away at safeguards that had been put in place to discourage lenders from providing mortgage loans to borrowers who could not pay back. These safeguards were part of the New Deal of President Franklin D. Roosevelt during the Great Depression of the 1930s. Starting with the administration of Jimmy Carter and continuing through the presidency of George W. Bush, lending standards were relaxed. Housing prices continued to escalate. Americans began take for granted that housing prices would always rise. It was inevitable, sort of like a financial force that only lately began to exert itself. The timing of when Americans began to act on their belief in this inevitability was wonderfully serendipitous for lending institutions. Here is what happened: Americans were buying more from overseas than they exported—the result was an outflow of U.S. cash to the foreign nations we were buying from greater than the inflow of foreign currency to us. With their excess of U.S. dollars, countries such as China, among other exporters of goods to the United States, were purchasing U.S. bonds and other securities, effectively sending back U.S. money to us. The dollars we send overseas to pay for the foreignmade goods we buy return to finance Washington’s deficits and soak up Wall Street’s securities. Never at a loss for ingenious ways to marry lenders to borrowers, and...

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