Open Spaces Keep You Out Of A House

Open Space laws come in many shapes and sizes.  They are sold by local governments to their citizens as the preservation of land for some purpose.  Sometimes it’s to preserve the natural beauty of where they live or to protect open spaces “for the children” or to maintain the natural habitat for the wild indigenous jackalope.  Whatever the form, the purpose of the laws are to prevent any kind of development from occurring on that land.  They can even be to “pay” farmers through lower property taxes to not farm their farmland.

I look at open space laws as the haves-keeping-the-want-to-haves-out.  Once you own a home in a town, you don’t care how much open land the town preserves because it benefits you, but if you are someone who would like to live in that town, because you just like the town or you work in that town and want to live closer to work, you will not be allowed entry.

Those already there, keep you out.

So here is out it works. The first image below is our hypothetical home owner Bob, who bought his red-roofed house in 2005. Each open square around Bob is land available to build other homes.  With so much land available, he only paid $150,000.

One House

Now Bob has a beautiful view from his house.  In every direction he sees hills and trees and mountains.  In a free-market, if Bob wanted to preserve that view he would have to buy up the land around him, like so…

Bob Buys Land

Now, if down the road Bob wants to sell his land, he is free to do so.  In fact, if all the other white spaces are filled up with houses, Bob’s land would become very valuable and he may decide that he wants to sell that land for a nice profit to someone who wants to build a home on it.  If he likes his view though, he can decide the value of the land is not worth losing the view.  The beauty is, Bob decides what to do with Bob’s land.

Unfortunately Bob can’t afford to buy the land around him and Bob knows that in a town that does not pass open space laws, other homes would be built around him like it shows in the image below.  Their homes would be priced at fair market value based on the land left available for development.  As you can see, until the last few empty squares are left, there is plenty of land so the home prices remain affordable.

Multiple Houses

Bob decides since he can’t afford to buy the land around him he will get on the city council instead.  On the council he introduces several measures that will “preserve” the “open spaces” throughout the town for “the children” or the “jackalope” of for whatever is popular or “green” at the time.

The measures pass as the voters are easily swayed by anything that sounds environmentally friendly.

Open SpaceOvernight, all the land around Bob is preserved.  Suddenly, there are only a few lots left to build on.  By using the government to lock out all the land around Bob he was able to avoid having to buy it up with his own money to keep others from building around him.  Also, since there are so few lots left to build on, the value of Bob’s house has skyrocketed.  He had it appraised only two years later in 2007 and it was worth $500,000.

Sara, who lives in another town an hour away but works in Bob’s town comes to his town looking for a house. She can afford around $200,000, a little more than what Bob paid for his house just two years prior. She finds one not far from Bob, but the price is $550,000.  She can not afford it.

The Haves (Bob) successfully kept out The Wanna Haves (Sara) from building around them and enriched themselves in the process by tripling the value of their home.

There are many unintended consequences of passing open space laws.  To continue our example, Sara now must decide if she should commute two hours a day to work or rent in Bob’s town. She decides it’s not worth the commute and looks for a job closer to where she lives.  Many like Sara do the same.  Businesses in Bob’s town start having a hard time finding employees.

At the same time, John who lives in the same town as Sara decides to move to Bob’s town and rent.  Unfortunately, because so much land has been locked out for development by open space laws, there are not many rental units available which has caused rents to skyrocket in Bob’s town too.  John can not afford to rent and so turns down a job offer in Bob’s town.

Businesses respond by increasing salaries for their employees so they can afford the more expensive rent in Bob’s town and to entice those with commutes from other towns to come work in Bob’s town. To do so, they must raise their prices to their customers.  So when Bob goes shopping or buys groceries, he is paying higher costs to support the higher salaries to pay for the higher rents that he inadvertently caused through his open space laws.

Bob decides the problem is caused by the higher rents.  If only the rents were cheaper, then the local businesses would not have to pay so much to their employees.  Bob again goes to the City Council and presents a measure to create “affordable housing” and “rent-control” so a specific number of properties are always available at below-market-value rents.  The measure passes and Bob pats himself on the back for solving another catastrophe.

Unfortunately, the private land developers don’t make any money on these rent-controlled buildings and so they don’t bother to maintain them.  The heat and plumbing in the buildings begin to fail and most people are not willing to live there anymore.  The areas around these buildings become blighted with crime as the bottom layer of society begins moving into these dilapidated units.  As the crime spreads, surrounding areas of the town are pulled down.  Businesses in the area close shop and move to another part of town or out of town.  Other rental units, ones that are not rent controlled lose tenants as they seek safer parts of town.  In response, these units must lower their rents which draws in the same crowd responsible for the crime.  The blight continues to spread.

Bob avoids that part of town.

In order to fight this crime, Bob proposes to the City Council that more police officers are added and a new jail is built.  The Council agrees but there is not enough tax revenue to afford more police or the jail.  The police must live in Bob’s town, they can not commute for obvious reasons.  Therefore the salaries of the police are much higher than they should be so the police can afford to buy a home in Bob’s town, and certainly much higher than police salaries in surrounding towns.  The town decides to raise property taxes but having so few houses because so much land is protected from development, they must raise property taxes on what houses there are significantly.  The following year Bob writes a check for his much higher property taxes and is unhappy, but he’s not sure why.

Bob returns to the city council and says the property taxes are too high and that they should raise business taxes instead.  The Council agrees and an increase in business taxes is passed.  The local businesses, already paying higher salaries and dealing with an increase in crime are not happy with the higher taxes.  They know there are other towns around Bob’s town where the business taxes are lower, there is less crime and they don’t have to pay their employees so much because rents are cheaper.  Businesses in Bob’s town start to close and move to other towns.

Sara is so happy because the company she wanted to work for in Bob’s town moved to her town, and now she can go back to work for them and avoid the commute.

As businesses leave Bob’s town, more and more people are out of work.  As the unemployment rate goes up, welfare services in the town are swamped with people seeking aid. In order to continue providing these services, the town begins considering other ways to raise tax revenue…

I could go on for pages on the unintended consequences of open-space laws.  The point is, be careful of politicians pitching these laws.  Politicians do not consider the consequences of their actions beyond election day.  The purpose of their lives is to produce a good soundbite for the 6 o’clock news, not weigh the economic consquences of one action versus another.  They are not paid to think, they are paid to get re-elected.

Categories: Housing Market, Personal Economics

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