Thursday, October 11, 2007

Red vs. Blue State Real Estate

Virginia Postrel has an excellent new article in The Atlantic Monthly on how regulation spikes up housing costs and affects the red-blue state divide (her blog has some excerpts if the free link has expired). It starts as a story of two different townhomes she's owned, one in LA and one in Dallas, and how much more the LA one appreciated vs. the Dallas one. It then has this great chart of the cost premium for land-use regulation in various cities. Houston's not on it, but you can safely assume it's somewhere below Dallas at the bottom.Moving on to the excerpts, even though Dallas does have zoning and Houston does not, you could replace "Dallas" with "Houston" throughout the article and still be accurate.

Dallas and Los Angeles represent two distinct models for successful American cities, which both reflect and reinforce different cultural and political attitudes. One model fosters a family-oriented, middle-class lifestyle—the proverbial home-centered “balanced life.” The other rewards highly productive, work-driven people with a yen for stimulating public activities, for arts venues, world-class universities, luxury shopping, restaurants that aren’t kid-friendly. One makes room for a wide range of incomes, offering most working people a comfortable life. The other, over time, becomes an enclave for the rich. Since day-to-day experience shapes people’s sense of what is typical and normal, these differences in turn lead to contrasting perceptions of economic and social reality. It’s easy to believe the middle class is vanishing when you live in Los Angeles, much harder in Dallas. These differences also reinforce different norms and values—different ideas of what it means to live a good life. Real estate may be as important as religion in explaining the infamous gap between red and blue states.

The Dallas model, prominent in the South and Southwest, sees a growing population as a sign of urban health. Cities liberally permit housing construction to accommodate new residents. The Los Angeles model, common on the West Coast and in the Northeast Corridor, discourages growth by limiting new housing. Instead of inviting newcomers, this approach rewards longtime residents with big capital gains and the political clout to block projects they don’t like.

The direct results of these strategies are predictable: cheap, plentiful housing in some places, and expensive, scarce housing in others. A remodeler working on my L.A. town house a couple of years ago wistfully recalled visiting a cousin in Arlington, Texas, between Dallas and Fort Worth. He wanted to move there himself. In Arlington, he said, “you can buy a million-dollar house for $200,000.” According to Coldwell Banker’s annual survey, a 2,200-square-foot, four-bedroom “middle-management” home costs around $141,000 in Arlington (or, for big spenders, $288,000 in Dallas), compared with $1 million or more in the L.A. area. One man’s million-dollar dream home is another’s plain old tract house.

Many people do pack up and move, if not to Arlington, then to Las Vegas or Charlotte. Historically a magnet for educated migrants, California has begun losing college-educated residents, on net, to other states, in large part because of the high cost of housing. Most of the South’s population growth since the 1980s has come from the lure of cheap housing created by liberal permitting policies, according to new research by the Harvard economists Edward Glaeser and Kristina Tobio. By lowering the cost of housing, these policies give residents higher real incomes compared with similarly paid workers elsewhere—a strong incentive to move, even if you don’t like bugs or hot summers. The mobile middle class gravitates to the cities where housing is affordable. “If you’re your basic $85,000-a-year person, you can’t own in Los Angeles. You can’t do it,” says the Wharton School economist Joseph Gyourko. And if you’re your basic $45,000-a-year person, closer to the U.S. median household income, you’d better pack for Texas.

...

But high-price areas could put many more units on the land they have. Research by Gyourko, Glaeser, and Raven Saks found that the lowest-density areas around expensive cities tend to have the least new construction and the most land-use restrictions.

...

The right to build was nearly a quarter million dollars less (in Dallas) than in L.A. Hence the huge difference in housing prices. Land is indeed more expensive in superstar cities. But getting permission to build is way, way more expensive. These cities, says Gyourko, “just control the heck out of land use.”

The unintended consequence of these land-use policies is that Americans are sorting themselves geographically by income and lifestyle—not across neighborhoods, as they used to, but across regions. People are more likely to live surrounded by others like themselves, creating a more-polarized cultural map. In the superstar cities, where opinion leaders congregate, the perception is growing that the country no longer has a place for middle-class life. Yet the same urban sophisticates who fret that you can’t live decently on less than $100,000 a year often argue vociferously that increasing density will degrade their quality of life. They may be right—but, like any other luxury good, that quality commands a high price.

As far as her characterization of superstar cities like LA - "stimulating public activities, arts venues, world-class universities, luxury shopping, restaurants that aren’t kid-friendly" - I'd actually say we score a lot better on these measures than we're given credit for. But the perception still exists in these "superstar" cities that moving to someplace like Houston would be a cultural wasteland on par with the way we think about, say, Amarillo. Sigh. I suppose in one way those outdated perceptions are a good thing: if the secret got out, we'd get mobbed by enough blue-state cost-of-living refugees to require a few dozen post-Katrina Astrodomes...
Update: Postrel follows up with more on her blog.

Labels: ,

33 Comments:

At 11:03 PM, October 11, 2007, Anonymous Anonymous said...

One Amazing thing about Dallas is the airport. I recently passed through it. They really fixed that place up. It was clean, modern, very spacious, HUGE and had been equipped with a new train system that looked sharp. From the airplane one could see the highway passing underneath the airport.
Another promising thing about Dallas is its proximity to wind energy resources. The potential for supplying wind energy to Dallas is incredible.
From the airplane one could also see the limitless supply of land surrounding the Dallas area. Even with that there were still all kinds of skyscrapers around. If you live in Dallas you think life is promising because there are jobs, houses, opportunities and diversity of points of view. Houston is the same kind of story.

 
At 10:55 AM, October 12, 2007, Anonymous kjb434 said...

^^

You can ditto that for Houston. The masterplan for IAH is underway. In about 10-year the airport will be unrecognizable to todays configuration (speaking only to the terminals). IAH will follow the model of Atlanta-Hartsfield. Also, Hobby will be completely remodeled soon. Most of it is done already.

Houston also has vast expanses of land to spread out and give people the lifestyle they want. And no, sprawl is not a drain on the environment.

 
At 1:26 PM, October 12, 2007, Blogger Michael said...

"And no, sprawl is not a drain on the environment".

Whatever - I assume you are driving a fuel cell car, have wind energy for your home, workplace, etc? Then, you might be correct. But even then, sprawl takes up more land than living in urban communities.

Also, LA had the greatest raw population gain in the US between 2000-2006 at 1.5 million new people, and in percentage terms grew by 8% (Houston's figure is 11%). Atlanta, which also has zoning, grew by 15%, the greatest percentage gain. I find it hard to believe that all of these 1.5 million new people in LA work as entertainment executives, as the author of this article seems to imply.

 
At 3:06 PM, October 12, 2007, Blogger Tory Gattis said...

> I find it hard to believe that all of these 1.5 million new people in LA work as entertainment executives

LA has a strong net domestic outmigration. The population gain is all international migration and childbirth. According to Joel Kotkin, the vast majority are very poor, and cramming themselves in very tiny, run-down houses and apartments (often several families to a house), just to find menial service jobs serving those executives...

 
At 3:43 PM, October 12, 2007, Blogger Michael said...

Doesn't really matter how the people show up, does it? Are you saying that someone relocating from Idaho is better than someone relocating from Spain, or because of higher birthrates? Who cares where they come from - a person is a person.

Again, 8% growth for LA, 15% for Atlanta, 11% for Houston. Also, while Houston may have positive domestic migration at the moment, I think both Houston and LA at least owe a lot of their growth to immigrant communities (a large number of which are illegal, in both cases).

 
At 4:50 PM, October 12, 2007, Blogger Tory Gattis said...

No. What Joel Kotkin and I note in our Opportunity Urbanism report is that cities like LA have truly driven out the middle class, leaving an upper class and a despondent lower class with few options for moving up the economic ladder.

Yes, all these cities owe much of their growth to immigration, but cities like Atlanta, Dallas, and Houston have a real path to the middle class available to those immigrants and their children (which are generally American citizens by birth), both in terms of jobs and home ownership.

 
At 11:55 AM, October 13, 2007, Blogger Michael said...

Well, I can agree with that to some extent in terms of home ownership. But the LA job market is still far bigger than Houston's - there are plenty of job opportunities there as well - across all income groups.

And if LA is attracting more educated, dual-income families that aspire to be upper middle or upper class, well, I'm not sure that is a bad strategy if you can pull it off, as opposed to attracting the lower class. Being known as a world-class destination for the elite is something any city would probably do if it could market itself that way. Houston simply cannot compete against LA / NY / Chicago / Tokyo / London etc. in this way right now - unless you happen to be in the energy sector. Or love humidity.

And the middle class is disappearing across many cities, according to a recent Brookings Institute study - while affordable homeownership is nice, it does not solve the issues of stagnating wages and rising health care and energy costs that affect the average consumer. "Upward mobility" is mostly a myth in the US today, unfortunately.

 
At 5:37 PM, October 13, 2007, Anonymous Anonymous said...

"Houston simply cannot compete against LA / NY / Chicago / Tokyo / London etc. in this way right now - unless you happen to be in the energy sector. Or love humidity."

Bull. For one thing, humiduty doesn't bother me. I like it. I don't like NY or Chicago because it's too expensive and too cold. Also, I'm not in the energy sector, but the medical sector, which is larger than any other sector in Houston. Not only that, I don't have to live in the city as I work in the burbs, so I bike down the greenbelt paths to my practice. I'm not the only one either. Houston is just too vast and expansive too compare it too the lies of another city, for whatever reason. Simply put, Houston is the best place for your dollar for most reasons. Not only that, when I travel and people ask me how I can possibly live in such a disgusting place (and many have never been here that say that) I tell them it's worse than they can imagine...so don't even think about moving here or especially Austin or Weatherford or tons of beautiful towns all over the state, within driving distance of a large city.

 
At 10:40 PM, October 13, 2007, Blogger Brian Shelley said...

michael,

If you look at LA a little closer you will see some of what is talked about.

City of Los Angeles Year-over-year population growth estimates from the Census.

2000-2001 42790
2001-2002 42856
2002-2003 29217
2003-2004 17567
2004-2005 9569
2005-2006 2319

A trend perhaps?

Mind you, LA ran out of land to annex long ago.

 
At 10:44 PM, October 13, 2007, Blogger Brian Shelley said...

And for good measure. Here's data on Long Beach:

2000-2001 3,566
2001-2002 5,205
2002-2003 4,334
2003-2004 263
2004-2005 -1,475
2005-2006 -1,813

 
At 11:19 PM, October 13, 2007, Anonymous Anonymous said...

The old paradigm that people aspired to live a few select/special metro areas is over. My relatives reside in a highly self regarding and expensive metro area on the Pacific coast. They imagine themselves to live in a "special" place that is of higher value than places with worse weather, less elightened people, and lower priced real estate. They live near the city dump, a large sewage treatment plant in a modest condominium with no garden or yard. In the area that they live it is very hard for an honest and hardworking middle class man to find a job. It is extremely crowded, the traffic is bad, gas is expensive and there seems to be no hope in changing these problems.
It is not LA, but LA must be worse and the problems of overcrowding, congestion, pollution and environmental scarcity are only worse. The movies like sicko and an inconvenient truth are reflections of what it must be like to live in LA. The lady who died in the government run King-Drew hospital that has since been shut down is something like the Sicko movie. If I was stuck in LA I would also imagine that the world was ending and that Sicko was a reflexion of reality.

 
At 1:17 AM, October 14, 2007, Blogger Michael said...

Brian,

Not sure where you are getting those census figures from. I checked out census.gov (at http://preview.tinyurl.com/3cz22c) and wikipedia, and both show LA growing - the PMSA / CSA grew by 1.5 million people, and the census has the smaller city of LA (which covers only 12 million people) growing by .6 million people through 2000-2005.

Also, I think some of this news about the decline of the coasts is media hype and talking heads as opposed to a real story - yes - some people are moving to Phoenix, etc. The south is growing. But I don't think NYC or LA are hurting either - in fact - my understanding is they are growing as well - they are just attracting a different class of resident / investor. And my point is - there is nothing wrong with that - because those cities are not trying to be Houston. They are trying to be world-class cities. Houston is, at best, a marginally world class city (they actually have rankings for "world class" - Gamma World Cities if you feel like looking it up).

If anything, unlike you and Tory, I welcome efforts for Houston to be world class. I want others to want to live here because we are undertaking efforts to attract the creative class and become a world-class city. Then there will be even more jobs, opportunities, innovation, etc. Both Tory and "anons" have been making the argument that they do NOT want others to live here - something that strikes me as a pretty suspicious view for a proponent of the city.

Fortunately, I believe Mayor White and the city are tackling quality of life issues - just look at the parks ordinance that was passed this week. Yes, it will cost the developers more - but in doing so, the average person might actually have a neighborhood park to enjoy.

Does anybody really believe that the one and only goal for Houston should be low cost housing, at the expense of quality of life?

-Mike

 
At 5:39 PM, October 14, 2007, Anonymous Anonymous said...

Does anybody really believe that the one and only goal for Houston should be low cost housing, at the expense of quality of life?

-Mike

It's not a "goal". The Houston area is so vast there is no "expense" in the quality of life, for whatever "world class city" definition that covers. I guess we're just more adaptable. I find beautiful places around here all the time. It always changes because it's not landlocked. That's the main result of low cost housing here. Houston is unlike any other city. I would suggest looking at the larger picture. My slogan for this would be..."Houston, the cradle of of expansion and freedom".

 
At 8:01 PM, October 14, 2007, Blogger Brian Shelley said...

Michael,

My numbers are from the census as well. I'm looking at city populations and not metro area populations. While the periphery of LA is still growing many older areas are peaking and declining in population. This is not a fall off in demand, but a constrained supply situation. Houston, NY, Atlanta, etc.. are not experiencing this population trend in their core.

"If anything, unlike you and Tory, I welcome efforts for Houston to be world class."

Come on now, that's just silly. I simply believe that the greatest things about cities happen organically, not through group think at city hall. It's hard for me to swallow an economic idea like "creative class" which seems to boil down to sucking up to the cool kids.

 
At 2:49 PM, October 15, 2007, Anonymous Mike said...

Thoughts:

Looking at the chart, it seems to be proximity to the coast (and hence limited land supply) rather than regulations that is driving up prices.

The fact that Dallas has effective regulations and yet is practically as affordable as Houston suggests that regulations do not have to drive up costs.

When are people going to wake up to the fact that Houston presents itself as a slovenly mess to anyone who has not been inured from years of living here, and that we lose jobs (outside oil) and opportunities for diversication because of that? Am I the only person for whom civic pride includes being able to say that you live in an attractive city?

 
At 3:30 PM, October 15, 2007, Blogger Michael said...

Brian,

As I've said before, I think metro populations are more interesting for comparison sake than city populations. Why? Well, I feel that it is more apples to apples - cities in the Northeast and Midwest for example might by definition be an area that would only encompass something slightly larger than the Houston downtown. St. Louis - for instance, has lost a lot of population if you just look at the city - and it's about the size of Topeka. But, the metro area is about 3 million people and has grown slightly - and is more comparable with Houston than St. Louis city.

Also, the "creative class" argument is not "just silly". While I agree that legislators alone cannot will a city to be the next LA or NYC, I don't believe that if you just let developers do whatever they want, that Adam Smith's "invisible hand" will just solve all our problems either. I believe that in Houston's case - more regulation and planning are needed, not less. In some cases, this might even be tax breaks and favorable treatment for companies looking to relocate - but suggesting that we should not use government as a tool is the silly argument, to me.

And to me, for city issues like zoning and transportation, where Houston is really an outlier among major US cities, the burden of proof is on those who want to continue to maintain our outlier status. Most people moving to Houston these days expect zoning, rail transit, parks, etc.

Mike,

I agree with you that Houston should strive to be an attractive city that we can be proud of, not just a low-cost city.

-Mike

 
At 7:10 PM, October 15, 2007, Blogger Brian Shelley said...

Mike,

I use city populations for LA to exhibit one fact about the West Coast. Affluent, desirable communities are losing population. Not from lack of demand like Detroit, but because of restricted supply and high prices.

I think that there are plenty of regulations that are benign. The most recently passed regulation to require developers to maintain open space or contribute to a fund to purchase parks is an example. It seems perfectly reasonable for new construction to provide new parks. As we add residents to the city they should be contributing to public goods that they will likely consume. There may be some economic inefficiencies in the plan, but it would take more analysis than I care to pursue.

Zoning is not the same. Zoning creates dead-weight loss. The property is prevented from finding it's economically optimal use. It's like telling Nevada that it's iron ore can only be used to make steel for cars, and nothing else.

I have asked the question before. What would your zoning in Houston look like? What specifically would you like to see happen that would improve the aesthetics?

 
At 10:16 PM, October 15, 2007, Blogger Tory Gattis said...

Sorry for the delay in responding - I was out of town for much of the weekend. Good debate going on here.

A few points to throw in:
Referring to Kotkin and I's Opportunity Urbanism report at
http://www.houston.org/pdfs/kotkin/KotkinReportwithlinks.pdf

p.30 has a graph showing that NYC, LA, and SF have higher than average international immigration, but below average domestic migration - actually negative - meaning they are *not* attracting better-off households relative to the rest of the U.S.

p.31 actually shows they are net-losing college-educated households.

bottom of p.37 shows that LA is losing middle through upper-income households.

 
At 8:00 AM, October 16, 2007, Anonymous Christof Spieler said...

Is Boston suddenly a red state city?

I think there's a lot more going on here. A lot of the cities on this graph with the highest growth in housing prices are those with geographical barriers to growth: San Francisco, LA, New York, Seattle, Chicago. It's not land use regulation that keeps developers from building houses on the Pacific Ocean or in Lake Michigan.

 
At 8:30 AM, October 16, 2007, Anonymous kjb434 said...

I like how people claim San Francisco has a geographical barrier. If a city can't grow out, it must grow up.

Oh wait, zoning regulations and/or rampant NIMBY activist stop the natural process of the city to grow and adapt.

If San Francisco and Boston were allowed to grow naturally, these cities would have many more high-rises to accommodate the lack of housing supply.

 
At 8:35 AM, October 16, 2007, Blogger Tory Gattis said...

Christof: by the way the study and graph is designed it compensates for what you're talking about. They're comparing the cost of a 1/4 acre of pure land vs. the right to build on that land, so by definition they're measuring the cost of regulations.

 
At 9:03 AM, October 16, 2007, Anonymous Mike said...

"I have asked the question before. What would your zoning in Houston look like? What specifically would you like to see happen that would improve the aesthetics?"

Form-based zoning.

 
At 9:26 AM, October 16, 2007, Anonymous kjb434 said...

Form-based zoning still greatly restricts property rights. Even though doesn't restrict land used, it does restrict floor size, and height.

To me, this would still produce some of the same problems as conventional zoning. The floor size and height restrictions could cause the same lack of supply. The floor size and height restriction would also be a back door way of restricting land-use by preventing certain businesses or residential projects from being feasible.

Below is a link to some information to form based zoning.

http://www.nh.gov/oep/resourcelibrary/referencelibrary/f/formbasedzoning/

 
At 1:55 PM, October 16, 2007, Anonymous Mike said...

"To me, this would still produce some of the same problems as conventional zoning. The floor size and height restrictions could cause the same lack of supply."

So what you're saying is that form-based zoning could strangle the Houston economy because heaven knows there is not much open space left, and we could become another stagnant city like Dallas or Atlanta?

 
At 2:15 PM, October 16, 2007, Anonymous Anonymous said...

Dallas is not stagnant city Mike!! They are growing, investing, improving, and becoming a major player in the US. There is a lot of construction going on in central Dallas especially the Victory project. They are building up both highways and rail transit. Dallas is one of the more happening places in the U.S. How can you imagine it to be stagnant?

 
At 2:29 PM, October 16, 2007, Anonymous kjb434 said...

Who said anything about becoming stagnant? I'm against zoning because of property rights. No one has the right to have a guaranteed property value(high or low). Buying a house, condo, or developing a commercial property is an investment and has risk.

Form-based zoning is just a way to counter all the common and justified arguments against traditional zoning. In the end, it's the same thing. The truth is, we're getting the same development (dense and low-density) that Dallas and Atlanta get without extra layers of government. Why burden taxpayers with a zoning board and regulation when the job is already getting done. The urban style development people are clamoring for is getting built through the simple variance process on our limited powers planning commission.

Some people complain that zoning would have prevented things like the suburban style CVS and Walgreens in midtown, but in Dallas you have exactly that happening right by the dense residential buildings being built. You have a Walgreens and several other low density suburban style development just a few blocks from the high-rises on Turtle Creek. This isn't any different than what happened in midtown Houston.

A recent week long trip in Atlanta verified the same thing. Whether I was in downtown, midtown, Ansley, or uptown, they are producing the same results we are.

The reason I believed Houston lagged behind Atlanta and Dallas more urban developments is that the market dictated the development versus tax incentives, breaks, developers influencing zoning boards.

 
At 7:18 PM, October 16, 2007, Anonymous Mike said...

"Dallas is not stagnant city Mike!! They are growing, investing, improving, and becoming a major player in the US. There is a lot of construction going on in central Dallas especially the Victory project. They are building up both highways and rail transit. Dallas is one of the more happening places in the U.S. How can you imagine it to be stagnant?"

It's called sarcasm.


kjb,

The worry that zoning could cause stagnation, besides being the topic of this thread, seemed to be implied in your comment on "lack of supply." As far as property rights, the public can decide what degree of freedom they want with their property; for the vast majority of people in this country, zoning is not a serious infringement.

 
At 9:59 PM, October 16, 2007, Blogger Michael said...

Tory,

As to your comments about LA attracting "better off" households domestically - well, as usual the link is cutoff. But my point was exactly that LA / NYC etc are attracting international elite, whereas Charlotte, Phoenix, Houston, etc - are if anything attracting some domestic migrants who can no longer afford the coasts. Also these elite cities attract much more internation and domestic tourism / part-time residents / etc.

Again, I think if Houston could trade places with LA - we would do so in a heartbeat.

-Mike

 
At 10:29 PM, October 16, 2007, Blogger Tory Gattis said...

Mike,
If the cutoff URL you're referring to is the Kotkin Opp Urbanism report, it's here:
http://tinyurl.com/25wj8f

Setting aside the domestic vs. international migration, note the graphs on p.31 and 37 that LA is losing both college-educated and middle to upper income households on an *overall* basis - inc. all international and domestic. Not good.

And I can pretty much guarantee that if you took any poll you like of the population in Houston and asked them if they could snap their fingers and make Houston into LA (both the good and the bad), they would overwhelmingly reject it. You could even limit your poll to "the elites", pretty much however you want to define them, and would get the same answer.

 
At 7:22 AM, October 17, 2007, Anonymous Mike said...

I'd have to agree with Tory on this one - LA is extremely overrated. It attracts international elites because of the other international elites already there, and because people will flock to a name brand. Drove through again last summer and couldn't believe the graffiti, the air quality (couldn't see downtown from the Getty Center, which is like not being able to see downtown Houston from the Williams Tower), and just the overall hostility of the people.

 
At 12:13 PM, October 17, 2007, Blogger Michael said...

Thanks for the link.

I meant to suggest if Houston's leaders had the option of getting LA's immigrants over the long term, I think they would make that trade. LA may be suffering a dip right now - and I could care less for the city myself - but I think for most of history - and looking ahead - they are poised to attract not only the lower class, and middle class, but also the elites which Houston would have a harder time attracting.

Also, note in your report that you treat Riverside as a separate city which seems to be doing quite well - and Riverside is part of the LA CSA.

 
At 1:35 PM, October 17, 2007, Blogger Tory Gattis said...

If you look at the same graphs, Houston is attracting upper income households at a faster clip than LA and many other cities - immigrants and domestic. The "LA dip" will last as long as their housing prices are so outrageous, which will be the case as long as heavy regulation restricts supply.

 
At 5:25 AM, October 23, 2007, Blogger John said...

I moved to a suburb of NYC a year ago and from what I can tell, the main barrier to building in the NE corridor comes from a lack of land. Despite the fact housing costs more here there are a number of positives that come from traditional urban planning. First, there is much less of a reliance on the car. I live 35 min. from NYC and am able to live w/o a car by taking the train to work, and walking around town. Second, people are more exposed to people of all economic groups as a result of mixed neighborhoods, and walking around town. Having said this home prices in the SW are a dream come true and will continue to drain the East Coast's middle class.

 

Post a Comment

Links to this post:

Create a Link

<< Home