Mark Perry points to a very interesting feature of the US housing market – Texas didn’t experience a housing price ‘bubble’ in the last ten years.
This can be linked to the non-restrictive land policies adopted in that state.
Throughout the past decade, Texas has experienced far smaller house price increases than in California, Florida and many other states. During the bubble, California house prices increased at a rate 16 times those of Texas, while Florida house prices increased 7 times those of Texas. As a result, after the bubble burst, subsequent house price declines were far less severe or even non-existent in Texas. Texas had experienced its own housing bubble in the 1980s, however even then overall prices did not exceed the Median Multiple of 3.0 (The Median Multiple is the median house price divided by the median household income).
Unlike Texas, all of the markets with steep house price escalation had more restrictive land use regulations. This association between more restrictive use regulation and higher house prices has been noted by a wide range economists, from left-leaning Nobel Laureate Paul Krugman to the conservative Hoover Institution’s Thomas Sowell. It is even conceded in The Costs of Sprawl —2000, the leading academic advocacy piece on more restrictive land use controls, which indicates the potential for higher house or land prices in 7 of its 10 recommended strategies.
Here is Australia Alan Moran has been making these sorts of arguments for some time.
Land reform is the fastest way to further growth as well as standard of living improvements in Australia.
Land use is bogged down.
Heritage sites, national parks, zoning laws, building codes, height restrictions, tree-felling restrictions.
There are “environmental impact statements” for every brick that is laid and every inch of road.
All this comes at a cost, an actual dollar cost, that is buried in house prices. Homeowners are paying for our obsession with land use regulation with their monthly mortgages.
daddy dave
26 Jul 10 at 10:30 am
Yea it’s interesting. And Texas homes are pretty inexpensive too, so if there was a drop, 30% of $200,000 is a lot different to a ruinous 30% of $500,000 which is the rough cost of a Texas and Cali home.
Heritage sites, national parks, zoning laws, building codes, height restrictions, tree-felling restrictions.
Yep.
I was just eyeing off a potential building site. It had a shitty old home on it but holds a B heritage classification which means it would cost 100K in legal fees to tip it over without a guarantee of being successful.
The difference in the price is 25%. That’s how much it’s potentially costing the owner in loss of value.
That’s one of the many reasons I so despise the Greens and their hangers on.
JC
26 Jul 10 at 11:32 am
Quite JC.
When will the Australian Greens release their vicious, stultifying stranglehold on planning policy?
FDB
26 Jul 10 at 11:36 am
Did banks based in Texas do better during the GFC?
TerjeP
26 Jul 10 at 11:38 am
FDB does have a point
In NSW at least local residents don’t want more land release and/or higher density partly because they fear local infrastructure can’t accomodate all the development. And why are they afraid of this? Because the State government is incompetent at infrastructure
jtfsoon
26 Jul 10 at 11:38 am
Was there as much demand for housing in Texas over the period as the other States shown?
FDB
26 Jul 10 at 11:47 am
When will the Australian Greens release their vicious, stultifying stranglehold on planning policy?
The Greens as a party might not have a stranglehold on planning policy, but a general green, anti-development mindset does.
daddy dave
26 Jul 10 at 12:04 pm
Was there as much demand for housing in Texas over the period as the other States shown?
Yes.
Texas is booming, while California is stagnant.
daddy dave
26 Jul 10 at 12:05 pm
But aren’t restrictive land use regulations a fundamental reason for house prices to rise? Why should prices driven up by fundamental factors subsequently fall if those factors do not change? And how does Perry’s argument square with the fact that Australian house prices did not fall greatly during the GFC even though we do experience restrictive land use regulations? I think he is attributing house price cycles to the wrong variable. The author of the article he refers to, Wendell Cox, himself blames the price boom and bust outside Texas to speculators or ‘flippers’ attracted by ‘perceived scarcity’. What does this mean?
Rajat Sood
26 Jul 10 at 12:06 pm
Was there as much demand for housing in Texas over the period as the other States shown?
The population of Texas is swelling as hundreds of thoudsand of Americans abandon leftist shitholes such as California, Michigan etc.
Check the graphics here. It’s a modern day mass pilgrimage:
http://www.forbes.com/2010/06/04/migration-moving-wealthy-interactive-counties-map.html
Infidel Tiger
26 Jul 10 at 12:08 pm
I just observed a most telling thing about Sydney’s housing/land/population issues. A homeless guy ensconsed in an elements-protected doorway giggling into his i-phone!
Peter Patton
26 Jul 10 at 12:53 pm
Peter
There seems to be an excess of beggars around Sydney who don’t look homeless and whom I can’t say I feel much sympathy for.
There are the ‘normal’ homeless – the emaciated old lady aged beyond her years probably from a lifetime of drug abuse, the dirty foul smelling winos and madmen – these people you can feel nothing but pity for.
But I have also been asked for money by a beggar carrying a chic European ‘manbag’. And there is is this young guy who crouches on Oxford St and adopts this begging pose all day and who looks perfectly healthy and probably changes his clothes more often than i do and whom I’d just like someone to give a kick up the arse to and told to get a job.
jtfsoon
26 Jul 10 at 12:58 pm
“I just observed a most telling thing about Sydney’s housing/land/population issues. A homeless guy ensconsed in an elements-protected doorway giggling into his i-phone!”
A handful of scam beggars says precisely zero about the availability of housing in a city of 4.5 million. They piss me off too, but it’s just not relevant.
FDB
26 Jul 10 at 1:14 pm
FDB
The presence of the homeless also says precisely zero about the availability of housing. The homeless aren’t homeless because they can’t afford housing but because they’re nuts.
jtfsoon
26 Jul 10 at 1:18 pm
Did banks based in Texas do better during the GFC?
Yes. There’s been very little fallout in Texas. There are no building codes in Texas, or rather there are little limitations for land use. Consequently housing is very cheap.
As I said before, which FDB obviously took offense to and Dad restated, there just isn’t that disgusting Greens anti-development mindset in places like Texas. From Infidel’s chart you can see the “pilgrimage” of decent people moving away from those disgusting Zombies.
JC
26 Jul 10 at 1:20 pm
The author of the article he refers to, Wendell Cox, himself blames the price boom and bust outside Texas to speculators or ‘flippers’ attracted by ‘perceived scarcity’. What does this mean?
It means a great deal.
I believe it also means the gradual destruction of an economic region because land prices are so vitally linked to pretty much everything. In fact I reckon it’s one of the reasons for the slow demise of Sydney.
JC
26 Jul 10 at 1:23 pm
Jason – agreed 100% (in Australia at least, where we have a decent welfare system and reasonable public housing). Every time I hear a politician talking about building more dwellings as a solution to what is obviously a health issue, I want to scream.
FDB
26 Jul 10 at 1:24 pm
I want to scream.
Beta Central has taught you well I see, FDB.
JC
26 Jul 10 at 1:28 pm
I believe it also means the gradual destruction of an economic region because land prices are so vitally linked to pretty much everything.
Good point.
I would add that it’s not just about land prices, although that’s important. It’s also about flexibility of use, and land being able to used to suit the needs of today, rather than the needs of yesterday (because of red-tape inertia; or heritage status), or a general resistance to progress.
The Coalition have long championed labor market flexibility. Maybe they could push for land flexibility, but learning from their past mistakes.
ie, incremental gains; don’t overshoot; don’t try to do everything at once; and choose soft targets first.
daddy dave
26 Jul 10 at 1:33 pm
Dad, I’m a big believer in land use flexibility and the problems caused by planning, but the Feds will have little ability to achieve anything unless they sign an international treaty about sensible land use and planning policies.
” believe it also means the gradual destruction of an economic region because land prices are so vitally linked to pretty much everything.”
Ummm, land prices should drop if the economy is sliding.
pedro
26 Jul 10 at 1:47 pm
“The author of the article he refers to, Wendell Cox, himself blames the price boom and bust outside Texas to speculators or ‘flippers’ attracted by ‘perceived scarcity’. What does this mean?”
Isn’t this what you would expect to see? Increased demand (in this case because of speculation) where there is a constrained supply should cause sharp price increases. Similar increased demand where supply is less limited should cause gentler price increases. The collapse in housing prices in CA etc. is because demand has changed not supply.
AJ
26 Jul 10 at 2:00 pm
“The Greens as a party might not have a stranglehold on planning policy, but a general green, anti-development mindset does.”
Just because people couch their their demands in enviromentalism, doesn’t make them environmentalists. I have seen groups object to redevelopment of golf clubs because it is valueable green space.
AJ
26 Jul 10 at 2:09 pm
AJ, my point is that it is not clear why constrained supply should itself encourage speculation or why prices should fall most in states with constrained supply. If anything, the amount of unsold inventory in places like California and Florida suggests to me that supply was quite responsive to the higher prices being paid during the boom. I suspect there were other reasons for the size of the boom and bust in the western and southeast US.
Rajat Sood
26 Jul 10 at 2:58 pm