Zillow reports that “home values grew the most in markets with the strictest land-use regulations.” That’s not exactly news to Antiplanner readers, but it’s nice to hear others confirm it.
Unfortunately, Zillow bases its measure of who has strict land-use regulations on the Wharton Land-Use Regulation Index. This is the best index available but it still has a few problems. First, it is more than ten years old. Second, it only measures the strictness of city zoning, not the strictness of rural zoning near the cities (i.e., growth management). Third, it doesn’t measure how easy it is to get variances or zone changes.
As an example of the problems, Zillow concludes from the Wharton index that Houston and Dallas have “medium strict” regulations, while the least-strict rules are found in places such as Indianapolis and Kansas City. Of course, Houston has no zoning, though it does regulate heights and setbacks. The unincorporated areas around both Dallas and Houston also have no zoning and don’t regulate anything except development in riparian areas.
By comparison, counties in Indiana and Missouri are allowed but not required to zone. While some may not use zoning, as far as I can tell, all of the counties around Indianapolis, Kansas City, and St. Louis do zone. So I would have to argue that regulation in the Dallas and Houston metropolitan areas is less restrictive than these other regions.
Developing an quantitative index of land-use regulation is difficult, partly because there are multiple ways to regulate land and partly because the existence of a rule on paper doesn’t say anything about how strictly that rule is enforced. The Antiplanner hopes to look into this further.
In the meantime, the Census Bureau expects to publish its 2017 American Community Survey next month. This will includes such things as how people commute to work, median family incomes, and median home values. Unfortunately, the median family incomes and median home values reported by the survey will be from the previous year, while the 2016 data we have available now is for 2015. Housing prices have obviously changed a lot since 2015.
Zillow offers spreadsheets showing 2018 median home prices by state, metropolitan area, county, city, zip code, and even some neighborhoods. Meanwhile, the Department of Housing and Urban Development has a spreadsheet showing 2018 median family incomes by state, metro area, and county. This makes it possible to calculate the latest value-to-income ratios for many areas.
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These data must be used with caution, as Zillow’s definitions of metropolitan areas may not match those use by HUD. While Zillow generally follows Census Bureau definitions, HUD splits some areas such as Dallas-Ft. Worth and Miami-Ft. Lauderdale-West Palm Beach. In most cases, this can be fixed by going to Zillow’s county-level data. In addition, Zillow may calculate median prices and HUD may calculate median family incomes differently from the Census Bureau.
Comparing the American Community Survey’s 2015 numbers with Zillow/HUD’s 2018 numbers reveal that, as Zillow implies, affordability ratios increased the most in states with stricter growth-management laws. California’s value-to-income ratio has increased from 6.2 to 7.0, Oregon’s from 4.0 to 4.8, and Washington’s from 3.8 to 4.6. In contrast, Oklahoma’s has dropped from 2.1 to 1.9, Kansas from 2.0 to 1.8, and Ohio from 2.1 to 1.9. Indiana’s has remained flat at 2.0.
Some metropolitan areas that practice strict growth management have seen even larger declines in affordability. The value-to-income ratio for Los Angeles grew from 7.8 to 9.3, while San Jose grew from 7.5 to 10.3. New York, which is supposedly more affordable due to new high-density construction, grew from 4.9 to 6.1. In 2015, Portland was 4.2 and Seattle 4.1; they are now tied at 4.8.
Houston has crept up from 2.5 to 2.7, San Antonio from 2.4 to 2.8, Dallas-Ft. Worth from 2.5 to a worrisome 3.0, and Austin from 2.8 to 3.4. Austin is really two markets: the city of Austin, which is making itself unaffordable, and its suburbs, which remain affordable, at least to the people who live there.
As the Antiplanner has noted before, anything above 5.0 is truly unaffordable as under current mortgage rules people can’t pay off a mortgage that is five times their income in 30 years or less. Regions with ratios between 3 and 5 will be unaffordable for many of the residents while housing (including rental housing) in areas with ratios below 3 should be affordable to nearly everyone in that market.
With the understanding that the 2018 data are not perfectly comparable to the 2015 numbers, you can download my spreadsheets showing state data and metro area data. The metro areas are shown in separate columns for 2015 and 2018 because not all metro areas are included in both data sets.
When 10 people want 9 houses that’s not a market, that’s an auction. How else would San Francisco have million dollar homes and be the worlds largest outdoor toilet.