How zoning regulations inflate the housing bubbleSlate magazine has a nice, short piece on how zoning regulations drive up housing costs.
If you live in central Dallas, and if you could magically add a quarter of an acre to your lot size, you'd add (on average) about $2,200 to the value of your house. (We know this from comparisons of similar houses on different-sized lots.) Do the same in central Philadelphia, and your house value increases by $8,400; in central Houston, it's more like $17,600. In that sense, central Dallas land is just about the cheapest urban land you can find in this country. Among large cities, only Atlanta, Boston, and St. Louis rank lower.
In theory, that should be great news for Dallas housing prices. But it's not. A house that costs $100,000 to build typically sells for $140,000 in Dallas, maybe $120,000 in Houston, and under $90,000 in Philadelphia.
They go on to explain that the reason the land is worth more in places like Houston is that it is relatively easy to get permission to build on it. Not so in Dallas and most other cities. Zoning regulations restrict supply, which causes prices to spike into bubbles followed by their painful aftermath, often including driving both jobs and residents away.
When you buy a house, you're not just paying for the land and construction costs; you're also paying for a building permit and other costs of compliance. You've got to get the permits, pass the zoning and historic preservation boards, ace the environmental impact statement, win over the neighborhood commission, etc. ...
You can talk all you want about crazed speculators and bubbles in housing prices, but you still have to explain why competitive forces don't bring prices right back down. According to Glaeser and Gyourko, it's ever-expanding zoning laws that get in the way. If you want to lower prices, that's the bubble you've got to burst.
Our minimal level of development red-tape (and therefore strong housing market competition) is another hidden strength of Houston. Amusingly, it's one that we were mocked for for years (the largest city in the country without zoning), but now the shoe is on the other foot, with other cities wondering how they can pare back onerous development regulations without a resident revolt. Unfortunately, it's another one of those one-way slippery-slopes that are very difficult to go back from, similar to unrealistically low property tax caps.
I'm not saying Houston's perfect. There is a need for some historic preservation and directed development near light rail stations, but I think we're trying to accomplish these goals with a more thoughtful, lighter touch than the heavy-handed approaches of other cities. That, plus Mayor White's initiative to streamline the building permit process, puts Houston in a very good position going forward.