Some commenters on yesterday’s post want to pretend that the Antiplanner “cherry picked” three data series to show regions with a housing bubble and three more to show regions without a bubble. What rubbish.
My 2006 report on housing is based on data for 385 housing markets. Complete data are in the spreadsheet that I prepared for the report. You can use this spreadsheet to make your own charts like the ones in yesterday’s post for up to 6 metro areas at a time.
Of course, data in that report only go through 2005, so they show the bubbles but not the crashes. If you want more recent data, you can download them from the Office of Federal Housing Enterprise Oversight’s web site.
As I describe in my more recent Cato paper, the data reveal that most urban areas that have done growth-management planning experienced a housing bubble while most of those that have not done such planning have not had a housing bubble. The few exceptions, such as Nashville (planning but no bubble) and Las Vegas (bubble but no planning) are easily explained in the report.
State growth-management laws are not the only causes of bubbles. In Wisconsin, both the Milwaukee and Madison areas are run by county or regional governments that are applying various growth controls. No other parts of Wisconsin are experiencing bubbles.
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The evidence shows that, if government does not stand in their way, home builders can meet just about any demand for new housing. The three non-bubble housing markets I reported yesterday — Atlanta, Dallas-Ft. Worth, and Houston — are the three fastest growing metropolitan areas in America, each growing by more than 130,000 people per year. Home builders have no problem meeting that demand with very affordable, very nice homes.
Some commenters still hold the wishful belief that prices are higher on the coasts because the coasts are so much more desirable to live in than the interior. This does not explain why prices are so high in places like Boulder, which has been trying to manage growth for decades, but which is not near a coast. Prices are pretty reasonable in Colorado Springs, which has little growth control but is aesthetically at least as nice as Boulder. Meanwhile, many housing markets in North and South Carolina are very popular and near the coast, yet (with a few exceptions like Asheville and Charleston, both of which imposed various growth controls in the 1990s) did not experience bubbles.
It turns out that housing is an inelastic good. Like salt, we need it even if the price goes way up. What this means is that small restrictions on the supply of new housing can lead to large increases in price. And since sellers of existing homes are keenly aware of the price of new homes, if the price of new homes goes up, the price of all homes goes up.
Subprime mortgages, speculators, and Wall Street manipulations of mortgages all may have accelerated the recent housing bubble. But they did not cause it.
Without growth management, prices would not have been so high that lots of people had to resort to subprime loans. Without growth management, rising prices would never have attracted speculators to the market. Without growth management, the money that fled the telecommunications and dot-com industries when they busted might have gone to some other investment. So, without growth management, most of America’s housing markets would look like Houston’s or Dallas’s, and we would not be facing a banking crisis or a serious recession.
The problem for common folk (and the boon for us real estate investors) is the fact that planning creates “peak housing†and dramatically increases housing prices.
However, compared to the main housing inflation effect of planning, the fact that fast rising prices, in general, also create bubbles represents just an additional moderate inconvenience for common folk and yet another moderate opportunity for us investors to pump some more money out of residents (this is because investors can jump out quickly when the bubble starts bursting and let the common folk ride their home equities down).
When prices start rising again (bubble has deflated) I and other investors will quickly jump back into the market. There will be at least a few months to react for us investors. Housing prices never go up overnight and do not exhibit the short term fractal behavior of stock and other commodity markets (because for a large portion of people – the common folk- housing is not simply a monetary investment or a commodity).
BTW, if planning did not cause housing price inflation, I’d be doing the next best profitable thing I can do in life and still do fine. But thanks to planners, NIMBYs and environmentalists, real estate investing in restricted markets (and spillover markets) is one of the most profitable endeavors.
As a bit of an aside, if you don’t think Atlanta has been overbuilt I suggest that you haven’t spent enough time there. I lived there during 2004 and 2005 and unwanted condos were going up everywhere. Inventory is high there and people are having difficulty getting their principal back, particularly on condos. But houses, too. True, the appreciation was modest because supply expanded but the effect is there. If the data don’t reflect it then you have a data problem. If you are solely analyzing ‘price inflation’ then I think the analysis is too narrow to be of much use other than to say, well, if you restrict supply and erect barriers to entry then your housing market will have much more volatile pricing. I don’t think anyone needs a study to figure that out.
Your theory addresses the supply side well. But the demand side of the bubble is the more powerful, unless we had planning in 1819 went the US went through its first real estate bubble and panic. The demand side creates the timing. Without negative real rates, this global overbuilding would never have happened. The skylines of downtown Atlanta and downtown Phoenix look exactly the same, price appreciation rates or no.
I suggest that your data is not accurately describing market conditions. After all, it is difficult to determine what the price of housing in Atlanta, for example, would have been but for the cheap money. They may have gone down given the massive overbuilding of in-town condos and suburbs built out to the Alabama state line. I suspect that many of those projects will have a value of zero when all is said and done. But right now, they are just unsold inventory without any price discovery. Having represented many of these builders and seen their books and spoken with management, I think that speculation is pretty reasonable.
The planning restriction seem to have worked as funnels for money and appreciation multiplier – as any barrier to entry would obviously do. But as a chief cause, I’m not convinced and it pretty much goes against the best business cycle theory and hundreds of years of history to suggest that they did. Unless you think tulip scarcity cause that mania as well?
I suggest that the city of LA could restrict building right now and prices are still going to revert to historical multiples because of an inability of sufficient buyers to finance purchases and the destruction of price appreciation expectations. The cause of that is the credit cycle in my mind.
Some commenters on yesterday’s post want to pretend that the Antiplanner “cherry picked†three data series to show regions with a housing bubble and three more to show regions without a bubble
What else are your commenters supposed to conclude when you use sample sizes of 3? Whether the remainder of the data are consistent with what you showed is a separate question from whether a sample size of 3 is meaningful. Like I said yesterday: if a planner had used a sample size of 3 in an effort to support a hypothesis, s/he would have been made the laughing stock of Antiplannerdom.
BTW: It’s not as if you have no history of cherry-picking. Go here (http://ti.org/antiplanner/?p=158), and you’ll recall that you told us that sprawl doesn’t threatens farm production, because “per-acre yields of corn, cotton, rice, soybeans, and potatoes all grew faster than our population”. But guess what: the 12 other crops in your data had per-acre yields that DID NOT grow faster than our population. But you left that part out, trying to give us the impression that per-acre yields were generally increasing relative to the population when in fact they were only increasing for the 5 crops you cherry-picked.
“Without growth management, prices would not have been so high that lots of people had to resort to subprime loans.”
Without subprime loans, interest-only loans, loans with dramatically sliding scales, etc., etc., the prices could never have gotten that high, whether it was growth managed or not. People were taking jumbo mortgages out and putting $5,000 down (all the money they had) on $650,000 homes. If the lenders had not given so easily and the buyers had not taken such an inadvisable risk, the prices would have had to fall much sooner. This has NOTHING to do with whether or not the area was growth managed. If your potential buyers are all unable to afford the “bubbled up” price of your house without monstrous loans, you’re going to have to lower that price quick.
Was growth management a contributor to the housing bubble in some areas? Probably – the statistics here sure seem to lay it out. However, the bubble’s inertia was only maintained by subprime loans, and the ensuant crash was inevitable.
Subprime mortgages, speculators, and Wall Street manipulations of mortgages all may have accelerated the recent housing bubble. But they did not cause it.Without growth management, prices would not have been so high that lots of people had to resort to subprime loans.
Blockbuster, for sure Randal.
When will you share this “analysis” with the academic and policy world, so folks who do this for a living (e.g. credentialed economists) can study your data and “analysis”? Otherwise, this idea gets no play.
And as I’ve said dozens of times here, and jdd says above, Randal willfully discards the demand side of the equation (probably because he didn’t get that far in his studies).
Discarding the demand side is the only way to make this ideological stance work. Factor in demand and the argument has nothing.
DS
Dan,
I have encouraged my children to purchase homes. Each has four or five. Last year they sold a San Jose home which increased about 5 times in 12 years and took the proceeds to Boise, ID and bought 5 homes. It is listed as the number one business city. I am sure they will continue to do well as investers, They paid cash.
Thanks lg.
I’m not sure how that addresses the demand side equation, except that Boise is struggling with rapid growth,housing affordability, resultant growth controls et al., much of it due to the provision of knowledge jobs and the natural amenities nearby, both of which raised housing prices – even before the consideration of smart growth strategies to maintain QOL.
DS
Yes indeed once again – here we go – demand and supply….
– Increase in demand raises prices only if there is restriction on supply (Portland, San Jose etc.)
– Increased demand with elastic supply (ie no restrictions) does not raise prices (Houston, etc.).
You can probably find that even on the Venezuelan high school book on economics.
The demand for PCs keeps increasing worldwide but they keep getting cheaper since there are no restrictions on supply.
The real cost of housing (ie. inflation indexed cost) would actually be going down were it not for restrictions, since the costs of building (the same house) is declining slightly over time due to improvements in construction technology and techniques.
You need to speak to more micro- and urban economists, E. They haven’t had the benefit of your wisdom. Contact them and start a revolution!!!!!
DS
Whatever the conclusions of the micro analysis are, they must generally agree with the macro economic conclusions. I never heard of widespread instances where micro and macro economics come to different conclusions. Are housing prices an exception?
Start a revolution? That would not be in my best interest. If it succeeded and restrictive zoning were lifted, it would deprive me of the ability to extract $800K out of the next generation of Americans, when they seek to pursue their Silicon Valley dream (if, of course, San Jose’s “no vacancy – only $800k units left†attitude does not price them out of the opportunity in the first place).
Whatever the conclusions of the micro analysis are, they must generally agree with the macro economic conclusions.
No.
Micro looks at the…erm…micro reasons for decision-making. Macro is broad generalizations, micro is fine detail. E.g. that paper Randal liked so much by the UW prof on housing prices: missed the boat completely. Too broad, as I explained in comments.
DS
D4P —> In response to the cherry picking, I think part of the core issue is how much one expects a single blog post to contain. I wouldn’t expect them to be a long dissertation. On top of that I suspect part of the way the AntiPlanner makes a living is by selling the detailed research. Hard to sell the details if you’re giving them away for free on your blog.