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.