Sometimes, when you get a bee in your bonnet, you can't get it out. Here Randall O'toole, who works to lighten the burden of land-use regulation, blames the real esate bubble on... excessive land use regulation! "The key to making a housing bubble," he writes, "is to give cities control over development of rural areas."
O'Toole's explanation is nonsensical. Regulation that takes land out of use makes it more expensive , sure, just as would sinking some portion of the land beneath the sea. But this new price is not "a bubble price" -- it correctly reflects the new scarcity of land. (Yes, in the case of regulation, land has been made needlessly scarce -- unless the regulation is needed of course! -- but that makes no difference to the subsequent price analysis.) O'Toole actually seems to have re-defined the word 'bubble' to suit his agenda -- he writes, "But in the early 1960s, Hawaii and California passed laws allowing cities to regulate rural development. Oregon and Vermont followed in the 1970s. These states all experienced housing bubbles in the 1970s, with median prices reaching four times median-family incomes." Well, how does that make these "bubble" prices, as opposed to high prices that genuinely reflect the new, legally created scarcity of buildable land?
Land use regulation makes real estate prices go up -- and stay up. Not go up and crash. What is needed to explain what we have just seen is some story as to how prices got well above their post-regulation equilibrium value.
UPDATE: Think of it this way: Only a change can explain a change. You can't, for instance, explain a sudden surge in the price of oil by saying, "Well, it's useful for heating homes," because it has been for a long time now. Similarly, O'Toole's explanation can at most account for a rise in prices when regulation is enacted -- it can't account for why these bubbles pop. (Nor, of course, can it account for the huge real estate bubble of the 1920s, when, as O'Toole admits, there was almost no land use regulation.) Per O'Toole, these "bubbles" should last until the regulation is rescinded.