Friday, May 23, 2008

Why Houston housing has avoided boom and bust

Here's a lesson that town planning advocates everywhere should note.  While most of the American housing market has experienced boom and bust in the face of expansionary Federal Reserve policies, housing in Houston has remained relatively immune -- even though it's been at the epicentre of rapid economic growth due to the commodities boom.

The reason?  While most of the western world is under the thumb of town planners, with the result that housing in much of the western world has become seriously unaffordable, the city of Houston remains unzoned, and its housing among the most affordable anywhere.

Even the Federal Reserve has noticed the phenomenon, and has begun to realise that zoning and regulating land is destructive.  Says a new report by the Dallas Fed, the more unregulated US housing markets have weathered increased demand not with price appreciation, which is how it has played out in most western markets, but largely with new construction.  This is essentially because it's very much easier to build new homes in Houston. If it had been set up as a laboratory experiment to prove the failure of zoning, it couldn't have been done better:

       Given that Houstonians had access to the same new types of mortgages as the rest of the country and that Houston has had greater population growth than other large metros, we might expect price appreciation to be stronger in Houston than elsewhere. However, the opposite has been true.
   
Houston’s large supply of land means that demand growth primarily results in more construction, not higher prices...
   
At $155,800, Houston’s median house price is the third lowest among the 12 largest U.S. metropolitan areas and is less than half the average for these cities (Table 4). Houston’s median price is lower than even the national average, which includes inexpensive rural areas...
   
By comparison, the median house price in metropolitan San Francisco, where zoning laws and building codes are very strict, is $825,400.
   
This result—more zoning bringing higher prices—is a robust one. Economists Edward Glaeser and Joseph Gyourko find that house prices across the country are positively related to the degree of zoning and regulation...  But with plenty of unzoned neighborhoods remaining [in Houston], Houston house prices, on the whole, are restrained near construction costs.

You would think that news like this would attract the attention of everyone struggling to come to terms with the crisis in affordable housing.  You would think that even the most enthusiastic advocate of giving power to town planners might at least pause to reconsider their zeal.  That is, if evidence and affordability actually mattered to them more than political power.

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8 Comments:

Blogger Callum said...

I think a large part of Houston's economic growth in the first place was the released capital that would have otherwise gone into buying and building homes. Since housing is so cheap, more money is spent on other things. The house prices have also attracted a lot of people from other parts of the US to live there.

That being said, I don't think Houston is an attractive city when it comes to esthetics, but Houston's laissez-faire zoning has certainly helped the city, economically speaking.

5/23/2008 08:19:00 am  
Blogger PC said...

Yep, I agree with you Callum.

5/23/2008 08:47:00 am  
Blogger Owen McShane said...

I have just returned from giving a paper to a conference in Houston focusing on affordable housing and why Houston is so successful.
I was astonished to find Houston one of the most attractive cities I have visited and certainly one of the Greenest.
The idea that Houston is unattractive is peddled by planners who have to maintain something to complain about.
The food was great, the museum district has forty museums, there is no graffiti, and the school kids are smartly dressed and not a hoodie in sight.
The evidence of prosperity is everywhere but the new elite immigrants are pressing for zoning and smart growth because they cannot stand the idea of freedom. And the council is peddling light rail because they cannot look the Feds Gift Horse in the mouth. Their recipe is simple. Affordable housing, freedom and mobility.
The motorway system is wonderful.

5/23/2008 11:42:00 am  
Anonymous Robert Winefield said...

Hear hear Owen.

I've visited family in Houston 4 times in the last couple of years and it is a vibrant beautiful city with all of the amenities you'd expect of a major metro area.

The main drawback is that damn summer heat and humidity.

I find that most of the people who whine about the Mid West USA never bloody been there.

5/23/2008 11:51:00 am  
Anonymous Anonymous said...

I gather Houston is on flat land. How would it pan out in NZ cities where there are geographic boundaries to a lot of cities?
[genuine question]

5/23/2008 12:43:00 pm  
Blogger Clunking Fist said...

Eh? Is hilly land more expensive than flat land?
The boundries that NZ cities face are the zones, not the hills or the sea.

5/23/2008 01:52:00 pm  
Blogger Owen McShane said...

Flat land in Houston.
You mean like in Christchurch?

I do find it amazing that the planners have persuaded the people of Christchurch that they have run out of land. Almost as great an achievement as persuading the Australians that they are short of land too.
I do not know whether this is a tribute to the brilliance of the planners of the stupidity of the people.

5/23/2008 05:08:00 pm  
Anonymous LGM said...

Stupidity of the people. Greed of the insiders. Perfect combination.

LGM

5/23/2008 07:42:00 pm  

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