In an eerie echo of statements made before the collapse of American housing bubbles in 2006, leading Australian bankers claim that Australia is not suffering a housing bubble. Yet prices are unsustainably high and a collapse is inevitable, though when it will happen may be unpredictable.
America’s 2008 financial crisis didn’t lead Australian housing prices to fall. In fact, prices in Sydney have grown 106 percent and in Melbourne 88 percent since then. Ominously, however, prices in Melbourne, which are nearly as great as in Sydney, are falling for the first time in four years.
Here’s an incredibly stupid idea to deal with Portland’s housing affordability problems: Multnomah County proposes to build tiny houses in people’s backyard. The people will get to keep the houses on the condition that they allow homeless people to live in them for five years.
That’s supposed to be an incentive. For five years, you have to share your yard with a homeless person who may be suffering from a variety of problems, after which you get to keep whatever is left of the tiny home. But as one Portland neighborhood activist points out, what homeless people need is healthcare and social work, not to be warehoused in someone else’s backyard.
I suspect homeowners are going to be wary of this offer because they will have little control who lives in their yard. Not only would the homeowners be required to maintain the tiny houses while the homeless person or people lived in them, Portland is making it increasing difficult for landlords to evict unwanted tenants.
Boulder, Colorado is the least affordable city in America that is not in California, Hawaii, or the New York City urban area. Boulder’s unaffordability is directly due to a combination of land-use policies, including a greenbelt that is nine times larger than the city itself and limits on the number of building permits that the city can issue each year.
Click image to download this report. Click the link below to go to an executive summary of the report.
A new report published by Colorado’s Independence Institute argues that these land-use policies violate the Fair Housing Act and must be repealed. Thanks to these policies, the black population of Boulder is declining despite the fact that the city’s overall population is growing. Boulder also has one of the lowest homeownership rates of any city in the country, and it is especially low for blacks, who, more than whites, are increasingly forced to live in high-density, multifamily housing instead of single-family homes.
Glaeser and Gyourko point out that housing is affordable in most of the country despite zoning. In some parts of the country, however, “property rights have essentially been reassigned from existing land owners to wider communities, which have chosen to substantially reduce the amount of new building.” The result is that the supply curve for housing, which is nearly horizontal (meaning changes in demand have little effect on prices) in communities with traditional zoning, becomes very steep in the overly regulated communities (meaning small changes in demand can result in large changes in prices, i.e., prices will be more volatile).
Glaser & Gyourko make one interesting point that I had not raised. One of the impediments to housing production in California is a state environmental quality act that requires developers to assess the local environmental impacts of new housing. The result is that little new housing has been built in California, forcing people to move to places like Arizona and Texas. But California’s temperate climate means that greenhouse gas emissions there are far lower than in interior states. “If California’s restrictions induce more building in Texas and Arizona, which require far more artificial cooling,” says the paper, “then their net environmental [effects] could be negative in aggregate.”
The Antiplanner is flying to the East Coast today to help some local activists fight a proposed urban-growth boundary. Coincidentally, the Antiplanner’s faithful ally, Wendell Cox, released his annual international survey of housing affordability today.
As the Antiplanner has done for American states and urban areas, Cox shows that, among international urban areas, there is a high correlation between urban containment policies–whether through growth boundaries, greenbelts, or other tools–and unaffordable housing. Simple supply and demand says that when you restrict supply in the face of rising demand, prices will go up–and that’s exactly what we see all over the world.
Cox supplements data he has gathered himself from eight countries (plus Hong Kong) with additional data for urban areas in China and Malaysia. With a little work, it should be possible to add urban areas in non-English-speaking Europe. Perhaps we can have this done in time for the 2018 survey.
Geographic mobility–the movement of people from place to place in response to changing job trends–had declined in the United States, which in turn contributes to the reduction in economic mobility. David Schleicher, a Yale University associate law professor, has written a paper arguing that this reduction is due to government regulations, including land-use regulations that make it expensive to move and occupational licensing that makes it expensive to enter new markets.
This is an important paper, partly because it gained the attention of media ranging from Slate to Reason Magazine, and partly because it documents in detail some things the Antiplanner has said for years.
In Best-Laid Plans, I wrote, “A researcher in England has found higher levels of unemployment among people who own their homes. But this is because Britain’s growth-management planning has made housing there the least affordable in the world. Such high-priced housing greatly increases the cost of moving and discourages people who own homes from relocating to a city with more jobs. To date, this effect is much weaker in the United States, but continued housing shortages could potentially reduce American mobility.”
That sound you hear the next time you go to the beach (at least on the West Coast) may be the Australian housing bubble popping. After Hong Kong, Sydney is rated the second-least affordable housing market in the world (see page 12), with median home prices more than twelve times median household incomes–and that’s based on 2014 data. Prices since then have gone up much faster than incomes.
As of September, prices in the country as a whole are 7.2 times incomes; that’s more than all but a handful of urban areas in the United States. Home prices and price-to-income ratios have both risen sharply since 2000. The country’s housing stock is worth nearly US$4.5 trillion, or roughly 20 percent of the U.S. housing market, which is pretty high for a country that only has 7.5 percent of the U.S. population.
Economists have been expecting Australian home prices to collapse for some time, and it hasn’t happened yet. But the UBS Housing Bubble Index ranks Sydney as the fourth-riskiest housing market in the world, after Vancouver, London, and Stockholm.
The above graph shows the home price index for several metropolitan areas calculated by the Federal Housing Finance Agency using the Case-Shiller method. (The official Case-Shiller Index published by Standard & Poors doesn’t include as many metropolitan areas as the FHFA index.) It shows that, not only are housing prices rising again, in some urban areas–on the chart, Honolulu, San Francisco-Oakland, San Jose, and Seattle–already have prices much greater than they were at the peak of the 2006 bubble. It seems likely that these prices are going to crash again soon.
Portland housing prices have been rising faster than in any other major city in the nation, but the latest data show that the city has fallen to number 2 in that measure. Seattle housing prices rose by an annualized 11.0 percent in September, while Portland prices rose by “just” 10.9 percent. No other major city saw prices rise as fast as 10 percent.
Seattle prices are rising so fast that the city is selling every available vacant lot that it has, even though some would rather those lots be turned to parks. Seattle developers are renting studio apartments for $750 a month that are so small–just 130 square feet–that there is no room for a bathroom door.
Portland’s housing market is so tight that 17 acres is considered a large parcel. Naturally, the owners are planning to put multi-family housing on it at 70 units per acre. The largest available parcel in Portland suburb Lake Oswego is a mere 4.5 acres that will be developed at 48 units per acre.
Ben Carson has accepted Donald Trump’s nomination as Secretary of Housing & Urban Development, leading to all sorts of personal attacks and dire predictions for the future of cities under his leadership. The main point of contention is Carson’s belief that the federal government should not get involved in most local issues, which ought to be supported by the fact that many federal urban programs have had disastrous results, particularly for blacks.
The Antiplanner’s friend, Samuel Staley, has some “early thoughts” on what Carson might do as secretary. Most of them sound good to me and I hope they aren’t wishful thinking.