Wednesday, February 01, 2006

New comparative international housing affordability stats

Recently released. Houston ranks as the 21st most affordable housing market in the U.S., with the median house only 2.9 times the median income. I find it odd that Atlanta, DFW, and Austin all came in slightly ahead of us at a multiple of 2.8. Digging a little deeper, it looks like their housing is more expensive, but they have somewhat higher median household incomes so they get a slightly better multiple. They have the Houston median house at $145,100, and the median household income at $50,400.

But the differences between those cities is a quibble vs. the most unaffordable multiples: LA 11.2, San Diego 10.8, Honolulu 10.6, SF 9.3, Miami 8.8, and NY 7.9. Most major cities in the UK, Ireland, Australia, NZ, and Canada are pretty pricey too. Ireland and the UK are particularly scary once you look at their per sq.ft. figures, as their average houses are less than half our size. I'm not too surprised, as The Economist has been talking about an international housing bubble for some time.

Their conclusion:
Housing Affordability: The Policy Imperative

In summary, the unprecedented housing affordability crisis could represent a threat to prosperous economies. Research indicates that the crisis may be, in large part, a consequence (negative externality) of the excessive land use regulation that has been adopted in many markets. Severe land use regulations have generally been adopted without any understanding of their ultimate impacts on housing affordability. Indeed, these effects have often not been considered at all. Where housing affordability concerns have been raised, the typical response has been denial rather than informed and objective analysis.

Nonetheless, a considerable body of evidence indicates that the housing affordability crisis is not result of natural market force. The principal cause seems to be excessive land use regulation that strangles housing markets and drives prices upward at rates far higher than can be attributed to economic trends. Economics teaches that scarcity tends to raise prices, a principle that applies to virtually all products and services, including houses and land.

The loss of affordability is so immense that policies such as affordability quotas, first home buyer grants, workforce housing or tax relief programs cannot possibly make a material difference, despite their rhetorical attractiveness in some circles.
Economist Raven Saks of the US Federal Reserve Board has published research indicating the potential for economic loss in excessively regulated markets. The Joint Center for Housing Studies of Harvard University summarized the research as showing that metropolitan areas "… with stringent development regulations generate less employment growth than expected given their
industrial bases."


At 8:15 PM, February 01, 2006, Anonymous Anonymous said...

it seems a bit peculiar to blame "severe land use regulation" as the motive factor behind scarcity in land supply. a lot of metros have had "severe land use regulation" schemes for the past couple of decades, yet Cox's data indicates that the run up in median housing prices has only occurred over the past decade. (by severe land use regulation, let's take LA/OC for example -- strict zoning for single-family housing has existed in los angeles for a long time, long before '95.)

anyway, demographia's (more specifically, wendell cox's) stuff always seems to have some sort of agenda (strong libertarian land-use ideals). i'd take any sort of selective data/conclusions that it/he brings to the table with a grain of salt.

At 9:06 PM, February 01, 2006, Blogger Tory Gattis said...

Well, obviously you can have severe land use regulation without too many affordability problems until you finally hit your supply limits while demand keeps increasing - then you get the sharp acceleration.

At 10:52 PM, February 01, 2006, Anonymous Anonymous said...

Weird, then, that so many cities across the globe have hit their supply limits at the exact same time.

Somehow I think collusion among real estate investors (hedge funds? REITs?) has something to do with all of this. Real estate markets, because of land use regulations and the fact that housing price signals are based on imperfect information, seem like they are particularly susceptible to being gamed. If I had enough capital I know that's what I'd be doing.

At 11:33 PM, February 01, 2006, Anonymous Anonymous said...

i mainly take issue with demographia's constant schtick, as exemplified here:

"The principal cause seems to be excessive land use regulation that strangles housing markets and drives prices upward at rates far higher than can be attributed to economic trends"

what i'm just saying is that this statement is pure hyperbole. land use regulation excaberates a number of conditions already present in those housing markets that makes those markets even more hot.

there's both demand-side and supply-side causes outside of land-use regulation. demand-side, increases in demand for housing in certain areas. whether this demand is real or induced (LA/OC price increases seem more induced, due to the large increase in investors [the "flipping" phenomenon], while SF prices are real due to the huge influx of engineers and programmers to the area in the 90's), demand increases in these areas were real (as much as Cox tries to downsell demand as a proximate cause of housing increases).

additionally, restrictions on housing supply in metros like LA, SF, etc. don't seem man-made; rather they seem to be physical restrictions in housing supply (lack of land to build on -- not everywhere's as flat as Houston/the Midwest).

obviously, it's partially man-made, but (flatter) places like Omaha, Dallas, Atlanta have much more land to work with than the LA basin or the SF bay. and, of course, the aforementioned (affordable!) metros have land-use regulations.

and, of course, land-use regulations are there for a reason (aside from the more sinister belief that they exist to drive up land values). not everyone wants to live in a san francisco or manhattan, and without regulation, LA (which is already densifying very quickly) would probably tend even more so toward those aforementioned metros.

At 9:04 AM, February 02, 2006, Blogger Tory Gattis said...

All fair points.

> Weird, then, that so many cities across the globe have hit their supply limits at the exact same time.

Not as weird as you would think. A lot of factors came together at the same time, inc. low interest rates, but also a rapid transition to a job-hopping knowledge economy, where it's critical to be in certain cities if you want to maximize career opportunities/paths, esp. through certain industries (like finance, media, entertainment, tech, fed govt, etc.)

The long-term company-loyal mostly-blue/pink-collar economy of 20+ years ago was much less mega-city-centric.


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