Portland and San Francisco are not the only urban areas with housing affordability problems. Where the 2013 ratio of median home prices to median family incomes was 7.0 in San Francisco-Oakland and 3.8 in Portland, it was a wallet-busting 9.6 in Auckland, New Zealand.
In response, Chris Parker, the Chief Economist for the Auckland city council, has published a report that correctly identifies the problem as “excessive planning constraints” and a “limiting supply of greenfield land.” Unfortunately, his timid recommendation is that the city seek to reduce the value-to-income ratio to 5.0.
That’s like the Federal Reserve setting an inflation target of 50 percent. A 50 percent rate of inflation sounds pretty good compared with Zimbabwe’s peak inflation of 79.6 billion percent, but as a way of life, 50 percent inflation is still pretty awful.
Housing has once again become a big issue in many cities. No wonder: as the spreadsheet posted last week by the Antiplanner shows, non-inflation-adjusted prices in many urban areas have reached or exceeded what they were at the peak of the housing bubble last decade.
Portland prices have reached the point where a home will go on the market and sell in a few days for significantly more than the asking price because so many people bid on it. More controversially, Portland and Seattle builders are buying homes, replacing them with several skinny homes, townhomes, or condos.
Last week, the Antiplanner posted a spreadsheet with metropolitan area home price indices and graphs. To complete the set, here is a similar spreadsheet for state. One difference is that the graph only shows inflation-adjusted indices, which are more useful anyway.
To graph different states, simply enter the two-letter abbreviation of up to six states (in caps) in cells BH167 through BM167. If you have autocalculation turned on, the graph should update automatically. If you want to change the years shown in the chart, click on the chart to select it, then scroll down to see the years selected (currently cells BG248 through BM329). Drag the upper right corner up or down to change the beginning year and the bottom right corner up to change the ending year. I hope you find these data useful.
After the Antiplanner posted recent housing data on Wednesday, a reader asked for home price trends. These data are available for states and metropolitan areas from the Federal Housing Finance Agency. For some purposes, I prefer urbanized areas instead of metropolitan areas, for numbers like these the differences will be small.
Naturally, the FHFA’s raw data are not easy to visualize, so I’ve supplemented the agency’s metropolitan area data with a spreadsheet that automatically makes charts showing price indices in up to six urban areas. For example, the above chart shows indices for six areas with minimal land-use regulation.
A new survey from Trulia confirms similar surveys in the past: Millennial housing preferences really aren’t much different from those of previous generations. Contrary to claims that most Millennials want to live in inner-city multifamily housing, nearly 90 percent of Millennials aspire to buy a single-family home. Moreover, the vast majority hoping to live in suburbs or small towns, while only 8 percent say they want to live in a central city.
The myth that Millennials want to live in cities is so pervasive that one news report claimed that the results of this survey contradict the “reality” that people are moving to the cities. In fact, as Wendell Cox has shown, central city population growth was slower in the 2000s than the 1990s, for both Millennials and the population in general. Meanwhile, suburbs and small towns continue to grow faster than center cities, even among 20-29 year olds.
While the populations of core neighborhoods in and near downtowns are growing when measured on a percentage basis, this is mainly because these populations were so low in the first place. The 1950s and 1960s saw most major cities evict residents from their downtowns as a part of the urban renewal process, which was the urban planning fad of that era. Now, the same urban renewal tools–tax-increment financing, eminent domain, and other gifts to developers–are used to bring people back to downtowns, which is today’s urban planning fad. While planners have proven that “if you subsidize it, they will come,” this isn’t evidence of a huge and permanent change in housing tastes.
Growth management not only makes housing more expensive, it makes housing prices more volatile. So, even though the American economy isn’t exactly booming, growth in some parts of the country is sending housing prices upwards, and housing affordability has become a battlecry in San Francisco, Los Angeles, Seattle, Portland, and many other cities.
Unfortunately, it is usually the battlecry of advocates of the wrong policies. San Francisco’s affordability crisis has led to a blame game, with some blaming high housing costs on anti-development progressives (which is partly true) while other say they are solely due to due to demand, not supply (which is completely wrong). Proposed solutions include increased rent controls and inclusionary zoning, both of which would make housing less affordable in the long run.
In Seattle, someone noticed that developers were tearing down $400,000 bungalows in order to build three $600,000 condos and came to the wrong-headed conclusion that housing could be made more affordable by saving the bungalows. Yes, $400,000 is less than $600,000, but if you don’t increase the supply of houses, overall affordability will decline.
According to the 2013 American Community Survey, San Francisco has 381,000 housing units. The San Francisco Chronicle has found that about 350 of them are used as full-time vacation rentals through Airbnb. This, says the paper, “bolster[s] claims by activists that the service removes scarce housing from the city’s limited inventory.”
Supporters of Airbnb held a rally last October to persuade the city to legalize the service. Flickr photo by Kevin Krejci.
Since they live in one of the least affordable housing markets in the country, San Francisco residents are understandably sensitive to housing affordability. However, they are quick to blame high housing costs on everything but the real culprit. If it’s not Airbnb, it’s the Google, Apple, and Facebook buses taking people to work in Silicon Valley.
Yesterday, the Department of Housing and Urban Development (HUD) approved a new fair housing rule called Affirmatively Furthering Fair Housing. This follows the Supreme Court’s recent ruling allowing HUD to use disparate impact as a criterion for determining whether a community is guilty of unfair housing practices.
Racists. Wikimedia photo by Bernard Gagnon.
In one form of disparate impact analyses, HUD compares the racial makeup of a city or suburb with the makeup of the urban area as a whole. If the city doesn’t have enough minorities, it is presumed guilty and must take steps to attract more. Under the Affirmatively Furthering Fair Housing rule, that could mean subsidizing low-income housing or rezoning land for high-density housing.
Yet another example of light rail spurring economic development comes from Pittsburgh, where the Port of Allegheny County has approved $12.5 million in public subsidies for a $42.5 million transit-oriented development. Since the development will include 152 apartments and 15,000 square feet of retail space, that’s a subsidy of more than $82,000 per apartment. The subsidies will also help pay for a 541-space parking garage.
Don’t be impressed by 15,000 square feet of retail space: that’s about the size of a new Trader Joe’s. The average Trader Joe’s is about 12,000 square feet, but the newer ones are bigger. Of course, if they actually attract a Trader Joe’s, they might be able to fill the apartments, but the fact that Pittsburgh has one of the most affordable housing markets in the country probably means there is little demand for stack-and-pack living.
So once again it is proven that light rail doesn’t stimulate economic development; it merely stimulates subsidies for economic development. Pittsburgh officials complain that “transit-oriented development is very difficult in Pennsylvania” because “there is no dedicated funding source” that can be used to subsidize it. So why are they bothering? Apparently just because they want to follow the latest fad.
Smart-growth land-use controls are creating a generation of renters and result in “social and housing apartheid,” say economists Shamubeel and Selena Eaqub. Writing from and about Auckland, New Zealand, they note that, since 1995, the cost of developable land has risen 73 percent faster than incomes (p. 52).
They admit that demand has played a role in housing prices, but not the principle role. “Over time, house prices can fluctuate considerably, but, in the normal scheme of things, only in a transitory way,” they write. “Prices will rise to signal the market to make more houses and then fall back when supply matches demand. But house prices can rise continuously, relative to incomes and rents, if there are physical or regulatory constraints that stop supply” (p. 51).