August 19, 2002
On August 12 the Wall Street Journal described a 350-square-foot former public toilet in south London that developers are turning into a "stylish apartment." They expect to sell it for around $200,000. "Believe me," a developer told the Journal, "there will be a lot of interest."
First-time homebuyers in England will be more interested in a two-room house 60 miles from London affordably priced at $92,400. The house -- which the Journal describes as a "beach hut" -- is made of packing crates and has no plumbing or electricity.
"In the past decade, the U.K. has been building fewer houses than at any time since World War II," says the Journal. The resulting housing shortage is reflected in the fact that people spend an average of just 18 minutes looking at a house before making an offer.
The Journal attributes the housing shortage to "bureaucratic difficulties in getting planning permission -- especially in protected areas of greenery surrounding cities." As a result, "houses are so scarce that people will buy anything."
This seems likely to be the future of housing in Portland and other "smart-growth" cities. It is increasingly clear that housing affordability is strongly influenced by the level of government planning and regulation.
On August 9, USA Today printed a housing index developed by Coldwell Banker for scores of U.S. cities. The index is based on the median price of a mid-level, 2,200-square foot, four-bedroom, two-bath home. Such a home sells for $1.26 million in Palo Alto, CA, but only $101,000 in Yankton, SD. The table below presents mid-level home prices for selected cities along with the growth rates of the city and urban area from 1990 to 2000.
A scan of the numbers suggests there is little correlation between home prices and growth rates. In the fastest growing urban area in America, Las Vegas, the mid-level home sells for $182,000. Despite slow growth and the dot-com collapse, housing prices in the San Francisco-Oakland and San Jose areas remain several times that amount.
Table One: Mid-Level Home Prices and City and Urban Area Growth
Price of Mid- Percent Growth 1990-2000 City Level Home City Urban Area Albuquerque $190,000 17 20 Anchorage 237,988 15 2 Atlanta 269,780 6 62 Baltimore 243,500 -12 10 Boise 173,500 48 62 Boston 628,333 3 45 Boulder 462,000 11 14 Cheyenne 177,000 6 11 Denver 251,600 19 31 Houston 162,480 20 32 Las Vegas 181,800 85 89 Madison 197,790 9 35 Mesa 180,133 38 45 Milwaukee 222,633 -5 7 Minneapolis 301,566 4 15 Oakland 649,333 7 6 Palo Alto 1,263,250 5 7 Phoenix 209,283 34 45 Portland 275,725 21 35 Raleigh 203,166 33 77 Reno 239,205 35 42 Salt Lake 234,725 14 12 San Francisco 891,000 7 6 Seattle 335,317 9 56
On the other hand, there appears to be a strong correlation between land-use regulation and housing prices. Land-use regulations are strong in the San Francisco-Oakland and San Jose areas, in Oregon, Boulder, Massachusetts, and Maryland. Cities in these states and urban areas have the highest housing prices. Land-use rules are weak in Nevada, Arizona, Idaho, and Wyoming, and cities in these states have some of the lowest housing prices.
Of course, housing price is only part of the affordability equation. The other part is income. If incomes in Seattle are double those in Las Vegas, then Seattle housing (which costs slightly less than twice as much as in Las Vegas) may actually be the more affordable. Alas for Seattlites, Seattle household incomes are less than 50 percent greater than those in Las Vegas.
The National Association of Home Builders regularly compares median incomes with median home prices for nearly two hundred metropolitan areas. The "housing opportunity index" is the percentage of homes affordable to a family of median income in each metropolitan area. I compared the latest edition of the index (first quarter 2002) with the 1990s growth rates for those areas. These numbers are in table two at the end of this update.
The r-squared (a statistical measure of correlation) between the index and growth was less than 0.007, which is no better than random (i.e., two random number sets easily score r-squareds higher than 0.007). Thus, housing affordability has little relationship with growth. Instead, other factors such as land-use regulation are determining affordability.
According to the latest edition of this index, the nation's least affordable housing markets are almost all in California, Massachusetts, and Oregon, which are all heavily regulated states. Affordable fast-growing regions are in Arizona, Florida, Georgia, Nevada, and Texas. Except for Florida, all of these are lightly regulated; it would be interesting to know how Florida's land-use planning maintains affordability.
Defenders of land-use planning argue that planning makes cities more livable, so naturally they would be more desirable and thus housing would be more expensive. But is Portland really more livable than Albuquerque? Or Oakland more livable than Las Vegas? San Francisco is a fun place to visit, but is it really four times more livable than Phoenix?
Attempts to make housing more affordable through "inclusionary zoning" -- an ordinance requiring developers to offer a certain percentage of their homes at prices affordable to low-income buyers -- will only make the problem worse. The "affordable housing" provided by this ordinance will make up a tiny percentage of the entire housing market. But developers will have to increase the cost of the other homes they build in order to cross-subsidize the affordable units. This will drive up overall market prices as resellers take advantage of higher new home costs.
I suspect the main beneficiaries of inclusionary zoning won't include many of the low-income people who are most hurt by housing regulation. Instead, recent college graduates, whose incomes are low enough to qualify for low-income housing but whose lifetime earnings are likely to be high, will probably snap up much of the low-income housing required by inclusionary rules.
Further research should develop an index of regulation that could be directly compared with, say, the NAHB housing opportunity index. Several counties in Nevada have no regulation -- they do not even require building permits -- and thus would score a 0 on the index. The highest level of regulation might be found in cities such as Boulder or some parts of the San Francisco Bay Area that strictly limit the number of new building permits issued each year.
The most important thing home builders and realtors can do, however, is to put a human face on unaffordable housing. The South Carolina Landowners' Association is a coalition of realtors and low-income, often minority, landowners that is fighting land-use regulation in that state. The landowners are heavily impacted by large-lot zoning and other planning requirements, but lack lobbying skills. With the assistance of realtors and others, they are having an impact on state and local politics.
John Templeton, one of the association's co-founders, was honored in 2000 by the South Carolina Association of Realtors as the Legislative Grass Roots Realtor of the Year. This group provides a model that people in other regions should emulate.
Table Two
First Quarter 2002 Housing Opportunity Index (HOI) and 1990-2000
Growth
Metropolitan Area HOI Growth Akron, OH PMSA 79.9 5.7 Albany-Schenectady-Troy, NY MSA 68.5 1.6 Amarillo, TX MSA 68.7 16.2 Anchorage, AK MSA 75.6 15.0 Ann Arbor, MI PMSA 60.2 18.1 Asheville, NC 67.2 17.8 Atlanta, GA MSA 81.8 38.9 Atlantic-Cape May, NJ PMSA 62.4 11.1 Austin-San Marcos, TX MSA 67.9 47.7 Bakersfield, CA MSA 69.4 21.7 Baltimore, MD PMSA 77.4 7.2 Barnstable-Yarmouth, MA MSA 36.7 20.5 Baton Rouge, LA MSA 81.6 14.1 Beaumont-Port Arthur, TX MSA 80.6 6.6 Bellingham, WA 59.6 30.5 Benton Harbor, MI MSA 70.2 0.7 Bergen-Passaic, NJ PMSA 61.5 7.4 Biloxi-Gulfport-Pascagoula, MS MSA 71.6 16.5 Birmingham, AL MSA 73.4 9.6 Boise City, ID 77.7 46.1 Boston, MA-NH PMSA 48.2 5.5 Boulder-Longmont, CO PMSA 62.4 29.3 Brazoria, TX PMSA 65.2 26.1 Bremerton, WA PMSA 62.5 22.3 Buffalo-Niagara Falls, NY MSA 80.1 -1.6 Burlington, VT MSA 64.6 11.8 Canton-Massillon, OH MSA 83.0 3.3 Champaign-Urbana, IL MSA 87.0 3.8 Charleston, WV 83.2 0.5 Charleston-North Charleston, SC MSA 68.5 8.3 Charlotte-Gastonia-Rock Hill, NC-SC MSA 73.7 29.0 Chicago, IL PMSA 73.7 11.6 Chico-Paradise, CA MSA 40.9 11.6 Cincinnati, OH-KY-IN PMSA 83.6 8.9 Cleveland-Lorain-Elyria, OH PMSA 79.9 2.2 Colorado Springs, CO MSA 60.1 30.2 Columbia, SC MSA 81.5 18.4 Columbus, OH MSA 78.2 14.5 Dallas, TX PMSA 70.5 31.5 Danbury, CT PMSA 60.6 12.6 Davenport-Moline-Rock Island, IA-IL MSA 89.8 2.3 Dayton-Springfield, OH MSA 90.0 -0.1 Denver, CO PMSA 59.6 30.0 Des Moines, IA 84.5 16.1 Detroit, MI PMSA 67.1 4.1 Duluth-Superior, MN-WI MSA 81.1 1.6 El Paso, TX MSA 68.8 14.9 Elkhart-Goshen, IN MSA 94.9 17.0 Eugene-Springfield, OR 38.9 14.2 Fargo-Moorhead, ND-MN 94.5 13.7 Fayetteville, NC 80.0 10.3 Flint, MI PMSA 66.5 1.3 Fort Collins-Loveland, CO MSA 57.2 35.1 Fort Lauderdale, FL PMSA 70.3 29.3 Fort Myers-Cape Coral, FL MSA 74.2 31.6 Fort Pierce-Port St. Lucie, FL MSA 78.4 27.2 Fort Walton Beach, FL MSA 83.8 18.6 Fort Worth-Arlington, TX PMSA 79.7 25.1 Fresno, CA MSA 52.1 22.1 Gainesville, FL MSA 76.1 20.0 Galveston-Texas City, TX PMSA 58.9 15.1 Goldsboro, NC MSA 76.4 8.3 Grand Rapids-Muskegon-Holland, MI MSA 80.6 16.1 Greeley, CO PMSA 41.3 37.3 Greensboro-Winston-Salem-High Point, NC MSA 83.2 19.2 Greenville, NC MSA 71.6 24.0 Greenville-Spartanburg-Anderson, SC MSA 81.5 15.9 Hagerstown, MD PMSA 76.6 8.7 Hamilton-Middletown, OH PMSA 83.9 14.2 Harrisburg-Lebanon-Carlisle, PA MSA 80.4 7.0 Hartford, CT MSA 75.8 2.2 Hattiesburg, MS MSA 68.5 13.1 Honolulu, HI MSA 59.7 4.8 Houma, LA MSA 67.1 6.4 Houston, TX PMSA 67.8 25.8 Indianapolis, IN MSA 88.6 16.4 Jackson, MS MSA 81.3 11.5 Jacksonville, FL MSA 77.8 21.4 Jersey City, NJ PMSA 45.4 10.1 Kalamazoo-Battle Creek, MI MSA 67.0 5.4 Kansas City, MO-KS MSA 86.4 12.2 Knoxville, TN 77.7 17.3 Kokomo, IN 94.8 4.7 Lafayette, IN 86.1 13.2 Lafayette, LA 62.7 11.8 Lakeland-Winter Haven, FL MSA 85.5 19.4 Lansing-East Lansing, MI MSA 80.9 3.5 Las Vegas, NV-AZ MSA 70.2 83.3 Lawrence, MA-NH PMSA 38.1 22.2 Lexington, KY MSA 80.6 18.0 Little Rock-North Little Rock, AR 77.0 13.8 Los Angeles-Long Beach, CA PMSA 34.4 7.4 Louisville, KY-IN MSA 77.8 8.1 Lowell, MA-NH PMSA 35.6 7.5 Mansfield, OH MSA 83.5 1.0 Medford-Ashland, OR MSA 29.1 23.8 Melbourne-Titusville-Palm Bay, FL MSA 84.9 19.4 Memphis, TN-AR-MS MSA 76.1 12.7 Merced, CA MSA 33.0 18.0 Miami, FL PMSA 58.1 16.3 Milwaukee-Waukesha, WI PMSA 76.0 4.8 Minneapolis-St. Paul, MN-WI MSA 76.7 16.9 Mobile, AL 78.7 13.3 Modesto, CA 33.6 20.6 Muncie, IN 89.1 -0.7 Naples, FL MSA 68.8 65.3 Nashua, NH PMSA 58.7 13.5 Nashville, TN MSA 78.6 25.0 Nassau-Suffolk, NY PMSA 74.8 5.5 New Bedford, MA PMSA 39.9 -0.3 New Haven-Meriden, CT PMSA 75.5 2.3 New London-Norwich, CT-RI MSA 70.0 1.0 New Orleans, LA MSA 69.5 4.1 New York, NY PMSA 49.9 9.0 Newark, NJ PMSA 62.1 6.1 Norfolk-Virginia Beach-Newport News, VA-NC MSA 75.5 8.8 Oakland, CA PMSA 23.9 14.9 Ocala, FL MSA 82.8 32.9 Oklahoma City, OK MSA 80.1 13.0 Olympia, WA PMSA 64.9 28.6 Omaha, NE-IA MSA 82.2 12.1 Orange County, CA PMSA 37.7 18.1 Orlando, FL MSA 75.5 34.3 Panama City, FL MSA 80.2 16.7 Pensacola, FL MSA 82.8 19.7 Peoria-Pekin, IL MSA 90.8 2.4 Philadelphia, PA-NJ PMSA 76.7 5.0 Phoenix-Mesa, AZ MSA 75.4 45.3 Pittsburgh, PA MSA 69.4 -1.5 Pittsfield, MA MSA 65.7 -4.5 Portland-Vancouver, OR-WA PMSA 46.6 26.6 Portsmouth-Rochester, NH-ME PMSA 21.5 7.8 Providence-Fall River-Warwick, RI-MA, MSA 76.8 4.8 Provo-Orem, UT MSA 60.7 39.8 Pueblo, CO MSA 64.1 15.0 Punta Gorda, FL MSA 80.3 27.6 Raleigh-Durham-Chapel Hill, NC MSA 75.6 38.9 Reading, PA MSA 79.9 11.0 Redding, CA MSA 50.2 11.0 Reno, NV MSA 70.8 33.3 Richland-Kennewick-Pasco, WA, MSA 54.6 27.9 Richmond-Petersburg, VA MSA 79.3 15.1 Riverside-San Bernardino, CA PMSA 49.6 25.7 Rochester, NY MSA 78.6 3.4 Rockford, IL MSA 84.9 12.6 Rocky Mount, NC MSA 76.4 7.3 Sacramento, CA PMSA 43.7 21.5 Saginaw-Bay City-Midland, MI MSA 82.6 0.9 Salem, OR PMSA 50.4 24.9 Salinas, CA MSA 7.7 13.0 Salt Lake City-Ogden, UT MSA 68.3 24.4 San Antonio, TX MSA 68.5 20.2 San Diego, CA MSA 21.6 12.6 San Francisco, CA PMSA 9.2 8.0 San Jose, CA PMSA 20.1 12.4 San Luis Obispo-Atascadero-Paso Robles, CA MSA 13.0 13.6 Santa Barbara-Santa Maria-Lompoc, CA MSA 25.2 8.0 Santa Cruz-Watsonville, CA PMSA 8.0 11.3 Santa Fe, NM, MSA 59.6 26.1 Santa Rosa, CA PMSA 15.3 18.1 Sarasota-Bradenton, FL MSA 72.6 20.5 Seattle-Bellevue-Everett, WA PMSA 63.1 18.8 South Bend, IN MSA 80.8 7.5 Spokane, WA, MSA 66.1 15.7 Springfield, IL MSA 92.6 6.3 Springfield, MA MSA 76.4 0.7 Springfield, MO, MSA 88.7 23.2 St. Louis, MO-IL MSA 77.6 4.5 Stockton-Lodi, CA MSA 27.2 17.3 Syracuse, NY MSA 82.8 -1.4 Tacoma, WA PMSA 54.7 19.6 Tallahassee, FL MSA 85.1 21.8 Tampa-St. Petersburg-Clearwater, FL MSA 77.4 15.9 Toledo, OH MSA 81.6 0.7 Trenton, NJ PMSA 68.4 7.7 Tucson, AZ MSA 70.4 26.5 Tulsa, OK MSA 77.5 13.3 Vallejo-Fairfield-Napa, CA PMSA 17.9 15.0 Ventura, CA PMSA 36.9 12.6 Vineland-Millville-Bridgeton, NJ PMSA 85.6 6.1 Visalia-Tulare-Porterville, CA MSA 63.6 18.0 Washington, DC-MD-VA-WV PMSA 78.3 16.6 Waterbury, CT PMSA 62.7 3.3 West Palm Beach-Boca Raton, FL MSA 72.6 31.0 Williamsport, PA MSA 81.4 1.1 Wilmington-Newark, DE-MD PMSA 89.4 14.2 Worcester, MA-CT PMSA 57.4 6.9 Yolo, CA PMSA 38.9 19.5 Youngstown-Warren, OH MSA 85.8 -1.0 Yuba City, CA MSA 47.2 13.5 Yuma, AZ MSA 67.5 49.7
HOI represents the percentage of homes in each region
that is affordable to a family of median income in that region.
Growth is the population growth in percent between the
1990 and 2000 censuses.
MSA is metropolitan statistical area and PMSA is
Partial MSA. MSAs and PMSAs are drawn along county boundaries.