What happened in the 1970s?
Homevoters vs. the growth machine.
David Eby, the BC minister responsible for housing, has been pushing hard for municipalities to allow more housing. With the BC municipal elections coming up in October, the Union of BC Municipalities just published a short position paper which basically says that the housing shortage isn't their fault, and engages in a lot of finger-pointing. (Vaughn Palmer describes it as having an unmistakable "whiff of desperation.")
UBCM says that housing completions have been high in recent years, providing a graph going back to 2000 (not adjusted for population). But Leo Spalteholz points out that if you look further back, you can see a steep drop in new housing starting in the 1970s.
Setting aside today’s fight over housing supply, from a historical point of view this is surprising. Before seeing the data, I would have expected to see a postwar housing boom that faded away. Instead housing supply continued to rise right through the 1970s. What happened next?
William Fischel is an economist who's been studying local government and land use for decades. He has a good paper explaining what happened. The Rise of the Homevoters: How the Growth Machine Was Subverted by OPEC and Earth Day.
Fischel observes that owning a home is a risky investment: it's completely undiversified, and for most homeowners it dominates their net worth, so they can take a huge hit from a single event.
Before the 1970s, most homeowners thought of their home as a secure place to live, not an investment. But that changed as a result of the OPEC crisis and inflation, which caused home prices to rise steeply. To reduce risks to their home values, homeowners basically took over municipal governments, which were previously dominated by real estate and development interests. The takeover by homeowners is what resulted in the clear slowdown in new housing.
Residents of suburbs in the larger urban areas of the Northeast and West Coast used existing zoning and new environmental leverage to protect the growth rate of their home values. The regional spread of these regulations has slowed the growth of the economy and perpetuated regional income inequalities.
Nolan Gray describes the current situation:
Many U.S. cities force every development proposal to go through a long and costly discretionary review process. This is often done by making land-use regulations so restrictive that any development must pursue a discretionary action like a rezoning or a special permit. In practice, this submits all proposed development to months of negotiating and public review, in which locals can shout a project down to their preferred size (which is often a vacant lot) or extract large concessions from the developer.
This matches pretty well with the history of municipal politics in Vancouver, and with Vancouver’s current land use restrictions and public hearing process.
For a book-length discussion of the economics of land use, see Fischel’s Zoning Rules! The Economics of Land Use Regulation.