This is the second of three FREE Insight Columns on housing policy. The first, “Affordable Housing,” discussed local attempts to require developers to sell some units in new subdivisions at prices that prospective lower- and middle-income purchasers could afford. This column is about the role of states and localities in establishing land use and other regulations that would lead to a flourishing and healthy housing market. The final column will discuss national housing policy, primarily the appropriate role of federal tax and other subsidies, and government involvement in mortgage markets.

Before discussing land use, however, I want to note two responses I received from readers concerning the “Affordable Housing” column. Randall O’Toole, a senior fellow at the libertarian Cato Institute, cited studies indicating that affordable housing programs actually result in housing that is more expensive. From a different perspective, Peter Vander Meulen, the Coordinator of the Office of Social Justice of the Christian Reformed Church in North America, pointed out that “[t]he ethics of affordable or mixed use housing are grounded in a view of human nature and societies that does NOT assume ones value to God or the community is based on earning power, accident of birth, or even personal habits of thrift or spending.”

Affordable housing ordinances do not require the production of housing units that are cheaper to build—i.e., that are intrinsically more affordable. On the contrary, they often require that the “affordable” units, in most respects, are the same as the “market rate” housing with which they are mingled. “Affordable,” in this context, means that the qualified buyers pay much less than the market rate only because a large part of the cost of those units must be borne by market price purchasers and the developer. From an economic perspective, this is a tax on real estate developers and purchasers. Like taxes on other goods, it decreases the supply and increases the costs.

Most buyers of affordable housing, as Mr. Vander Meulen also observed, are not the “dissolute” beneficiaries I highlighted in my column. They are people who are indeed part of the community, without regard to their means or habits. Some have labored under, or even surmounted, real hardship. Their lives have been shaped by a myriad of forces.

But market rate purchasers, too, may have faced hardship, and typically have labored steadily for many years to achieve modest success. From their perspective, those few who win the affordable housing lottery and are given middle-income housing that they, and other lower-middle income residents might not be able to afford, makes a mockery of their own hard work. The golden rule of religious tradition says that we should not begrudge benefits received by others. However, in a large and disparate community, dangers of free riding on the charity of others are great. The late economist and theologian Paul Heyne suggested that, among strangers, a “silver rule” should apply. The destitute should be cared for, but help to others should be tempered by recognition of their own efforts, or lack of them, and by the needs of others, including those mandated to pay.

The principal subject of this column, however, is state and local land use regulations that advance or discourage the production of housing. This topic is closely connected to the previous discussion. Shortages of affordable housing often result from local or state regulations that discourage construction and investment in housing. Typically, these restrictions inure to the financial advantage of existing residents. Sometimes they are merely expressions of wholesome sentimentality that wind up doing far more harm than good.

Generally, localities in the Intermountain West and South do not impose stringent regulations on the production of housing. The price of a new home thus is the cost of materials and labor in constructing the home, plus the usually modest cost of the lot on the fringe of existing development. In the Northeast and Pacific Coast, however, the price of a new home is much greater because of onerous development restrictions. In some older cities, rent control still discourages the building or repair of apartments.

The most significant type of restriction puts large amounts of land off-limits for residential construction. In Montgomery County, Maryland, an affluent area just northwest of Washington, DC, most of the western third of the county is set aside for agricultural preservation. In Oregon, growth management boundaries attempt to force high-density development in areas such as Portland, by dint of requiring that the surrounding land be limited to very low-density farms and farmhouses. In Hawaii, residential use is precluded on some 95 percent of the state’s acreage.

Two groups of people harmed by such restrictions are the farmers who would like to sell their land for urban uses and retire, and families seeking to move to the area. The scarcity of buildable lots means that their price will be high. As a rule of thumb, construction costs are three times the cost of the lot, so the entire cost of housing is driven up.

There are few developers, owners of unimproved acreage, or farmers in most suburban communities. Most of the voters are existing homeowners. There are many reasons why it is in the interest of homeowners to oppose development. The ensuing residential land shortage drives up the value of their homes. The lack of new residents prevents traffic congestion. The presence of nearby undeveloped land represents public open space at someone else’s expense. Feelings of keeping the community “green” are pleasant.

In addition to prohibitions on development or insistence on very large building lots, localities discourage construction through fees. “Impact” fees mean that newcomers have to pay for their own roads, schools, and other infrastructure, even though such facilities for existing residents often were financed through property taxes. Newcomers have to pay property taxes in addition. “Linkage” fee requirements mean that newcomers have to pay assessments for often remotely connected municipal activities as childcare and job retraining facilities across town.

Existing residents also may express their love of the environment by supporting prohibitions on low-density suburban development, now renamed as “sprawl.” As politicians quickly learn, however, the only thing suburbanites hate more than sprawl is “infill,” the development of vacant lots in their own parts of the community. The result is a vast shortage of new housing in areas where people want it most. As Harvard economist Edward Glaeser points out, cities like New York stringently limit the construction of new high-rise residential units, exacerbating the lack of housing the middle class could afford.

In most instances, market forces will lead to an ample supply of affordable housing in metropolitan areas, if those forces are allowed to work. Too often, however, they are not.

If very low-density new residential development would jack up road, utility, and other infrastructure costs, those desiring it should pay the difference. If demonstrable and significant environmental harm would result from residential construction, it would need to be remediated. Otherwise, the key to communities that are both flourishing and affordable is for states and localities to eliminate roadblocks to development.