Monday, September 08, 2008

Reason says non-zoning helps Houston weather the housing storm

Sam Staley writes about Houston in Reason's 'Out of Control' blog:
As cities across the nation reel from the steepest housing market decline since the 1930s, Houston’s real estate market is surprisingly strong. While new housing sales have fallen dramatically, they haven’t fallen as far or as steeply as in other cities across Texas or the nation. At least part of this resilience is due to the market-driven nature of the city’s land development process, including a real-estate market unencumbered by zoning.

More than 2 million people live within the city’s borders while another four million round out the metropolitan area. Houston may well emerge as the archtype city of the 21st century. Urbanist Joel Kotkin used the term “Opportunity Urbanism” to describe the city in a study for the Greater Houston Partnership, pointing out that Houston’s entrepreneurial drive, affordability, tolerance for diversity, and willingness to adapt to changing economic circumstance may well propel it to become the next U.S. megacity.

Underappreciated in the city’s success may be its uniquely flexible and adaptable approach to land-use regulation. Unlike every other major city in the US, Houston has shunned zoning regulation, preferring to leave choices about land uses up to the real estate market.

The benefits of this market-based approach are most apparent immediately adjacent to and inside the “Loop” (the I-610 beltway, a ring road about 10 miles from the city center). Redevelopment occurs at a rapid pace inside the Loop, creating a mix of land uses rare in most U.S. cities, where aggressive zoning segregates and highly regulates land uses. High-rise apartment buildings and commercial towers emerge on redeveloped property quickly, and notices of higher density and mixed-use redevelopment dot parcels of land throughout the inner-loop area.

Despite the lack of municipal zoning, land development is not completely unregulated. Houston has adopted several statutes to set standards for infrastructure, parking, building setbacks, and building location. More importantly, in many parts of the city, private deed restrictions that limit future land uses run with the land, not the property owner. Nevertheless, substantial amounts of land are unrestricted by private deed, and property owners aggressively promote the flexibility and economic opportunity resulting by the lack of regulation.
From there he goes on to talk about the Ashby controversy (and its reactionary risks to our system), smart growth and the 2009 mayor's race, and Fed writings on how we were able to avoid the housing bust. It's worth checking out the whole thing.

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At 4:39 AM, September 09, 2008, Blogger tylerldurden said...

austin has zoning, housing strong.

dallas has zoning, housing strong.

houston has no zoning, housing strong.

what ties these 3 cities? they are in the state with the best overall business environment.

At 8:14 AM, September 09, 2008, Anonymous Anonymous said...

The website below is a housing market analyst used by developers, cities, MUD's, or anyone looking for extremely details housing numbers.

Theyrecently came give a presentation at the engineering firm I work for since we use them for Municipal Utility District creation reports to show that the market can bear new development an the MUD can support itself.

The presentation gave info all across the US and among local Texas markets. Although Dallas, Austin, and San Antonio have relatively strong markets compared to the rest of the US; compared to Houston they are pretty weak.

The main point in their presentation focused on the ability of builders in Houston to maintain a low inventory and still keep the housing cost low. In most markets a low inventory would raise prices and make development risky, but in Houston builders can regulate their inventory much easier. If they need more houses, they can quickly get permits and start building on available lots. They can even get new lots ready on the ground quickly in our regions.

The lead time for developers to generate new lots is much less in Houston. It can be as little as 5-9 months for larger developments. Whereas in other TX markets it can take up to 2 years. This lead time will make it more possible to prevent overproduction. Dallas and Austin have some excess inventory, but no where near the problems all across Florida.

At 1:31 PM, September 09, 2008, Anonymous Anonymous said...

A significant driver in Houston's relatively strong housing market is continued health of the energy and healthcare sectors locally. It is too facile to attribute housing market strength to lack of regulation. Parts of Houston metro area with zoning and/or significant deed restriction control are performing well---Woodlands, Sugarland, etc. Moreover, low prices in absence of any public control or certainty on what will be built next door may simply reflect low value in such a situation. We need to look at all the facts, and not jump to ideology-driven conclusions.

At 4:10 PM, September 09, 2008, Anonymous Anonymous said...

Texas and Houston in particular have minimal natural or governmental contraints on building supply. Thus we didn't have a bubble. Thus we didn't have bubble to burst. How amazing and completely shocking.

At 4:42 PM, September 09, 2008, Blogger Michael said...

>>Texas and Houston in particular have minimal natural or governmental contraints on building supply. Thus we didn't have a bubble.

That is perhaps one, albeit relatively insignificant, factor in why Houston does not have much if any housing bubble (although we do have foreclosure problems and certain segments of the market are in fact trending down even in Houston).

Probably 2/3 of the country has not had a significant housing bubble - everywhere from Minneapolis to Denver, Austin to Atlanta, Nashville to Dallas. So, I'd say lack of zoning is an almost inconsequential factor. And as others have observed, the vast majority of Houston's housing market is "de facto" zoned - in huge master planned communities which have every bit as much control as a zoning board, or in cities like the villages or West U, or deed restricted areas.

I'd personally say that the bubble experienced elsewhere was more due to a failure of the free market to regulate itself. Ask yourself - was Las Vegas' problem a "lack of supply"? Or was it that people were acting insane and throwing down $1 million for condos on the strip and hoping to flip that and turn that into $2 million? (Mint you, this is $1 million that they often did not have, because lending standards were non-existent). Would Las Vegas have fared any better had they built 2x the number of condos? 3x? This was a house of cards built by speculators. The same is true in Miami, Phoenix, LA, etc...

And just FYI, since some of you may have your right-wing blinders on, some articles have also appeared recently touting Portland's strict building policies as "bubble proofing" their real-estate market by restricting supply and the speculation that went along with it. I probably agree with that perspective somewhat more than Mr. Staley's, although the truth is probably that a mix of factors (including lack of rampant / speculative demand) have helped prevent bubbles in various locales.

At 6:07 PM, September 10, 2008, Anonymous Anonymous said...


Sam Staley was a speaker at the American Dream Coalition conference held here last May. He made a presentation on transportation networks and examined unique problems facing various cities. Staley argues that what urban areas need to do with transportation networks is to make sure that every place within the urbanized environment needs to be within easy access of every other place. Some areas like Atlanta have problems due to the layout of their road networks and getting from certain areas to others within the urbanized environment becomes difficult and time consuming.

Staley was on my bus when I acted as tour guide to out of town attendees. In his article, he refers to the fact that I had the bus route go by Ashby Highrise and the Huntingdon, discussing and comparing the two. We also toured Washington Avenue as an example of rapid redevelopment when the market is ripe for it in a non-zoned city. We also went through the Heights and described its revival over the past 20+ years. Later that day we went to Sienna Plantation in Fort Bend county to look at a privately planned master development, a rarity in many places. I also discussed zoning history and MUD's, while others filled in on topics like deed restrictions.

Staley also has a book coming out soon.



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