Saturday, May 9, 2009

Rybczynski's second reason is development restrictions that artifically lower the supply of housing

TO BE NOTED: From Mother Jones:

The Cost of Housing

Why do houses cost so much today? In the Wilson Quarterly, Witold Rybczynski writes that even when you adjust for inflation and home size, prices are still considerably higher today than they were 50 years ago. There are two reasons, he says:

The first is Proposition 13, the 1978 California ballot initiative that required local governments to reduce property taxes and limit future increases, and sparked similar ­taxpayer-­driven initiatives in other states. Henceforth, municipalities were unable to finance the ­up-­front costs of infrastructure in new communities, as they had previously done, and instead required developers to pay for roads and sewers, and often for parks and other public amenities as well. These costs were passed on to home buyers, drastically increasing the selling price of a house.

Interesting! If Rybczynski is right, we now have lower taxes but higher house prices. And perhaps that's fair. But it's also a godsend for everyone who bought a house more than 20 years ago. In California, it means that your original home price was low because taxes paid for the property improvements. Then the high taxes that built your neighborhood were capped, which drove up the price of building new neighborhoods, and since housing is fungible it also drove up the price of existing homes like yours. In other words: low price, low taxes, lots of appreciation. That's great news for all us baby boomers, but I'm afraid the Xers are paying the price. Par for the course, isn't it? Someday you guys are going to figure out just how badly we've screwed you over and it's going to be Soylent Green time.

(Rybczynski's second reason is development restrictions that artifically lower the supply of housing. Read the whole piece for more details.)"


Housing Prices

The main cause of housing price appreciation is regulation:

"The housing bubble was not universal. It almost exclusively struck states and regions that were heavily regulating land and housing. In fast-growing places with no such regulation, such as Dallas, Houston, and Raleigh, housing prices did not bubble and they are not declining today.

The key to making a housing bubble is to give cities control over development of rural areas — a step that is often called “growth-management planning.” If they have such control, they will restrict such development in the name of stopping “urban sprawl” — an imaginary problem — while their real goal is to keep development and its associated tax revenues within their borders. Once they have limited rural development, they will impose all sorts of conditions and fees on developers, often prolonging the permitting process by several years. This makes it impossible for developers to respond to increased housing demand by stepping up production.

Before 1960, virtually all housing in the United States was “affordable,” meaning that the median home prices in communities across the country were all about two times median-family incomes. But in the early 1960s, Hawaii and California passed laws allowing cities to regulate rural development. Oregon and Vermont followed in the 1970s. These states all experienced housing bubbles in the 1970s, with median prices reaching four times median-family incomes. Because they represented a small share of total U.S. housing, these bubbles did not cause a worldwide financial meltdown."

"We know that if the regulation is left in place, housing will bubble again — California and Hawaii housing has bubbled and crashed three times since the 1970s. We also know, from research by Harvard economist Edward Glaeser, that each successive bubble makes housing more unaffordable than ever before — and thus leaves the economy more vulnerable to the inevitable deflation. This is because when prices decline, they only fall about a third of their increase, relative to “normal” housing, before bottoming out."

The housing bubble, higher home values, also led to Prop. 13, since the assessments of the values of houses led to higher property taxes, leaving people on fixed incomes, for example, facing rapidly rising taxes on their homes.



I love when people use a logical fallacy to make a point:

"Poisoning the well (or attempting to poison the well) is a logical fallacy where adverse information about a target is pre-emptively presented to an audience, with the intention of discrediting or ridiculing everything that the target person is about to say."

I'm sure some people make similar well-reasoned points about Mother Jones. Try this guy:

"In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.

But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles.

And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble.

In the nation as a whole, housing prices rose about 50 percent between the first quarter of 2000 and the first quarter of 2005. But that average blends results from Flatland metropolitan areas like Houston and Atlanta, where prices rose 26 and 29 percent respectively, with results from Zoned Zone areas like New York, Miami and San Diego, where prices rose 77, 96 and 118 percent."


Demand for housing

To be noted:

"Thursday, July 10, 2008
Houston population growth highest in nation
Houston Business Journal

More people moved to Houston than to any other large city in the United States in the 12 months up to July last year, according to a new report from the U.S. Census Bureau.

The Bayou City added 38,932 new residents between July 1, 2006, and July 1, 2007, leading the nation in numerical population increase among cities with more than 100,000 residents.

Other Texas cities featuring among the Top 10 for numerical population growth included San Antonio at No. 3, Fort Worth at No. 4 and Austin at No. 8.

New Orleans, which had the fifth-largest numerical population growth, was the fastest-growing city in terms of percentage. The city's population rose by 13.8 percent to 239,124 during the period.

The nation's largest city in terms of population continues to be New York with 8.3 million residents, more than double that of Los Angeles, which ranked second with 3.8 million residents. Chicago, with 2.8 million, was third, followed by Houston and Phoenix, each with 1.6 million residents."

By the way, I didn't say that I was against zoning. In many cases, it makes sense. However, it's important to understand the trade-offs. I was addressing the issue of why home prices are so high in certain areas. You made an assumption about what I personally believe based on nothing.


Zoning and home prices

The name says Don the libertarian Democrat. That means that I belong to the Democratic Party. I took this name based on this post:

"The Libertarian Dem
by kos
Digg this! Share this on Twitter - The Libertarian DemTweet this submit to reddit Share This
Wed Jun 07, 2006 at 10:15:50 AM PDT
It's no secret that I look to the Mountain West for the future of the Democratic Party, people like Brian Schweitzer and Jon Tester. But I also look to candidates like Jim Webb in Virginia and Paul Hackett in Ohio.

And what is the common thread amongst these candidates?

They are all Libertarian Democrats.

Ack, the "L" word! But hear me out."

I don't follow your argument. The point about Houston, which isn't just one year but has continued, is that it did not have a housing bubble, but has had a very large increase in population. That's because it's cheap to build there. Krugman's point is that zoning restrictions, which exist in certain cities, but not others, cause higher home prices. He likes to use certain flashy terms when he writes, so I don't want to defend Flatlands. The issue is not which areas are currently most dense. You could have an area that isn't dense, but people want to live in it, but zoning doesn't allow any more construction, so the price of homes would rise. You could have a small area where a lot of people live, but you can build up and so keep the price of houses lower, especially if you can build condos. That's supply and demand.

Once again, for better or worse, zoning and regulations have a large influence on home prices. There's obviously a trade-off. I'm not going to generalize about it, because sometimes the regulations make sense, and sometimes they don't.

By the way, it was Flatland Cities Krugman was talking about. Here:


* Robert Bernstein
* Public Information Office
* 301-763-3030/763-3762 (fax)
* 301-457-1037 (TDD)
* e-mail:

* CB08-49
* Broadcast Release [PDF]
* Detailed tables
* State Contacts
* Graphic 1 [JPG] | Graphic 2 [JPG]

New Orleans Among the 10 with Fastest Growth Rate
Dallas-Fort Worth Leads Metro Areas in Numerical Growth

Dallas-Fort Worth had the largest numeric gain of any metro area between 2006 and 2007, increasing by 162,250, according to July 1, 2007, estimates of metro area population size and growth released today by the U.S. Census Bureau. Atlanta (151,063), Phoenix (132,513) and Houston (120,544) rounded out the metro areas with a gain of at least 100,000.

10 U.S. Metro Areas with the Highest Numerical Growth

The Midwest metro area with the greatest numeric change between July 1, 2006, and July 1, 2007, was Chicago (seventh overall nationally), while the Northeast metro area with the greatest numeric change over the same period was New York (21st overall nationally). (See Table 1 [Excel].)

Eight of the 10 fastest-growing metro areas between 2006 and 2007 were located in the South. (See Table 2 [Excel].)

Four of these fast-growing Southern metro areas were not only among the top 10 in percent growth from 2006 to 2007 but also among the 20 largest numeric gainers during the same period. Raleigh, N.C., was the third fastest-growing metro area, 4.7 percent, as well as the 12th largest numeric gainer, at 47,052. Austin, Texas, was the fifth fastest-growing metro area, 4.3 percent, as well as the eighth largest numeric gainer, at 65,880. Charlotte, N.C.-S.C., was the seventh fastest-growing metro area, 4.2 percent, as well as the sixth-largest numeric gainer, at 66,724. (See Tables 1 [Excel] and 2 [Excel].)

The fourth metro area in the South, New Orleans, was the eighth-fastest growing metro area between July 1, 2006, and July 1, 2007, as its population climbed 4 percent. It also was the 16th largest numeric gainer over the same period, with an increase of 39,885. The metro area previously had the highest rate of decline between July 1, 2005, and July 1, 2006.

In addition to New Orleans, other Gulf Coast metro areas where populations increased between 2006 and 2007 after having experienced 2005-2006 population declines included Gulfport-Biloxi, Miss. (1.8 percent population growth from 2006 to 2007); Pascagoula, Miss., (1.6 percent); Beaumont-Port Arthur, Texas (0.5 percent); and Lake Charles, La. (0.4 percent).
10 Fastest-growing U.S. Metro Areas
The 50 fastest-growing metro areas were concentrated in two regions — 27 in the South and 20 in the West. One metro area, Fayetteville, Ark.-Mo., straddled both the South and Midwest regions. Sioux Falls, S.D., and Springfield, Mo., were the two metro areas among the 50 fastest-growing located completely in the Midwest. None of the 50 was in the Northeast. That region’s fastest-growing metro area was York, Pa., which ranked 107th.

New York was the most populous metro area on July 1, 2007, with 18.8 million people, followed by Los Angeles (12.9 million) and Chicago (9.5 million). Nine metro areas had 2007 populations of 5 million or more. (See Table 3.)

More than four-fifths of all U.S. metro areas (303 out of 363) had a larger population on July 1, 2007, than on July 1, 2006. The 50 fastest-growing metro areas grew by at least 2.3 percent during this period, which is more than double the nation’s total population gain of 1 percent. As of July 1, 2007, the 363 metro areas in the United States contained 251.9 million people — 83.5 percent of the nation’s population."

I think that these are largely Flatland cities, but, again, that's Krugman. All that I'm arguing is about the connection between zoning and prices, without, as yet, giving any opinion on whether that's good or bad in a particular place.

Anyway, I'm off to dinner, but thanks for the comments.

Take care,

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