The Road to Neo-Feudalism

For middle- and working-class people across the developed world, home ownership has served as a primary driver of upward mobility. But in a growing number of places, this aspiration is being systematically undermined with grave implications for liberal democracy, the economy, and even fertility.

This phenomenon is recorded in the newly released 20th edition of Demographia International Housing Affordability, and it is found in virtually every high-income country. The gap between housing prices and incomes is greatest in large—usually left-leaning—metropolitan areas, including Sydney, which has the highest gap between household income and home prices outside of Hong Kong. Sydney is followed closely by Los Angeles, San Francisco, Toronto, Melbourne, Adelaide, and Vancouver.

Indeed, according to the OECD, house prices in high-income countries have been rising “three times faster than household median income over the last two decades.” Some of this can be attributed to things like population growth, but much of the harm has been self-inflicted, largely through policies that seek to restrict growth to already urbanised areas.

How to Destroy Housing Affordability

Ever since the introduction of Britain’s 1947 Town and Country Planning Act, planners have sought to rein in “sprawl” by restricting suburban and exurban growth. By the early 1970s, the legendary British planner Peter Hall suggested that the “speculative value” of land with planning permission in the UK was five to ten times higher than that of land without planning permission. He also concluded that the failure to prevent housing-affordability losses was “perhaps the biggest single failure” of urban containment in the UK.

The determination of planners—often cheered on by academics, politicians, and the media—has been to stop movement to the periphery with the aim of forcing people into “living smaller, living closer” whether they like it or not. This has boosted prices by delimiting—and even prohibiting—development on the periphery, where costs tend to be lower. The consequent price rises, some advocates of urban containment say, are intentional. As anti-sprawl advocates Arthur C. Nelson and Casey J. Dawkins have argued, urban containment “should decrease the value of land outside the boundary and increase the value of land inside the boundary.”

Rising prices have a particularly powerful impact on younger people and ethnic minorities, growing numbers of whom have been moving to suburban and exurban locations in the US, Britain, Australia, and Canada, but must cope with higher prices due to regulatory policies. This has been particularly notable in places like California, which has been imposing growth restrictions since the 1970s, leading to massive price inflation.

Since the 1970s, notes Dartmouth economist William Fischel, California’s policies have produced an extraordinary rise in housing prices. By 2019, California’s major coastal markets were the least affordable in the nation; the California Legislative Analyst’s Office reported that an average California home costs two-and-a-half times the national average, and the average monthly rent is about 50 percent higher. The 2020 Economic Report of the President found “a house price premium” of 100 percent in the Los Angeles and San Diego metro areas, and 150 percent in the San Francisco Bay Area. These premiums are a consequence of “excessive housing regulation.” The report also found that high prices drove rents up, due to the close relationship between the two.

Similar trends can also be found in other places that have adopted urban containment or compact-city strategies. In 2019, all of the 92 housing markets examined in Demographia International Housing Affordability areas with urban-containment policies were severely unaffordable. Today, according to the latest ACS data (2021), California ranks 49th out of the 50 states in home ownership, at 55.9 percent, slightly above lowest-ranked New York, at 55.4 percent. In contrast, none of the markets without such policies suffered the same result.

Read the rest of this piece at Quillette.

Joel Kotkin is the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and and directs the Center for Demographics and Policy there. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin.

Homepage photo: Family standing in front of their home circa 1950’s, via Flickr under CC 2.0 License.