Housing Boom and Bust

1835 Words8 Pages
Causes of the Housing Boom Government regulation of land use was the first of many factors that lead to the housing boom. Before 1970, coastal California had home prices that were similar to the national average. Thirty-five years later a median priced home in that region was three times the national average. This occurred because of growth-management planning restrictions imposed by the federal government. The decade of the 70s was marked by severe land use policies in the name of: open space, saving farmland, protecting the environment, and historical preservation. This created an artificial scarcity of land which drove up the price of remaining land in the counties and created a shortage of supply houses for a high demand of people wanting to own. These conditions made a modest sized home became literally a million dollar home. This among other policies, such as zoning laws and minimum lot sizes caused housing prices to become unbearable, not only in California, but other cities nation-wide where similar regulations were enforced. While home prices rose thirteen percent nationwide in a single year, from 2004 to 2005, the range was from a four percent rise in Michigan to a thirty-five percent rise in Arizona. The sharp contrast in increasing home values was really only located to a few areas of the nation, not nationally as the politicians lead the public to believe, which will be discussed later. While governmental restrictions had an impact on land prices, interest rates had more of an effect on the prices of homes Interest rates tremendously impact the housing market. The entity that has the most impact on interest rates is The Federal Reserve System, who sets nationwide interest rates on the lenders. Lenders then in turn lend their money with their own interest rates to the general public, including those who buy homes. Since 1981 the interest
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