The benefits of housing affordabilityA recent report ranking the highest-risk housing bubble markets has an interesting side-by-side comparison of San Diego and Houston. Both have a median income around $36K, but San Diego's median home price is $578K to Houston's $137K. This means the average household in Houston only has to spend about 22% of their income on their median-house mortgage, while in San Diego they would have to spend 90%! (if the banks would even grant such a loan) The percentage is 50% or more for many other cities in California and the Northeast.
This has got to be a huge drag on their longer-term prospects. Not only does it make labor extremely expensive for businesses, but all that income going for mortgages is not available for education, restaurants, arts, entertainment, charitable giving, or small business entrepreneurship. They may enjoy a short-term boost as people cash out their bubble homes (just like some lucky people bailed out on Internet stocks in '99), but the longer-term headwinds are stiff indeed.
What's Houston's secret to keeping housing costs reasonable? It's pretty simple really: allowing supply to grow to meet demand, including minimal regulatory interference so condo/apartment/loft/townhome densification can naturally occur where the market wants it. It also includes mobility investments (mainly freeway capacity) that keep the new housing supply within a reasonable commute of the employers.
As one professional residential real estate investor, looking for scarce housing to invest in, so colorfully noted in a recent Wall Street Journal article:
He also looks at supply, steering clear of Texas, for instance, because "they build houses like rabbits multiply."