Subprime Lending, Not Smart Growth, Caused the Bust

Posted by Julia Klaiber on June 21, 2011

The Wall Street Journal’s real estate blog recently featured a paper by National Center for Policy Analysis’s Wendell Cox implicating smart growth planning and policies for the housing boom and bust. Cox holds that metro areas with prescriptively regulated land use restrictions suffered the most from skyrocketing housing prices and the subsequent bust due to the inability of cities to meet rising housing demand, which drove prices upwards.

Cox’s argument is severely flawed.

The housing bust hit cities like Phoenix, Las Vegas, Riverside, Tampa (and the rest of Florida) the hardest. These are not cities known for smart growth; they just have the fastest housing growth. Additionally, Cox ignores the consequences of sub-prime lending and the role that policies played in controlling home prices by limiting speculative lending in some places (such as Texas). Cox’s implicating of smart growth policies as having any causal relationship to the housing bust is confounding.