HOUSING
AFFORDABILITY AND REGULATION
by Randall O'Toole
8/19/02
On
August 12 the Wall Street Journal described a
350-square-foot
former public toilet in south London that
developers are turning into
a "stylish apartment." They expect
to sell it for around $200,000.
"Believe me," a developer told the
Journal, "there will be a lot of
interest."
First-time homebuyers in England will be more
interested in a
two-room house 60 miles from London affordably
priced at $92,400. The
house -- which the Journal describes as a
"beach hut" -- is made of
packing crates and has no plumbing or
electricity.
"In the past decade, the U.K. has been
building fewer houses than at
any time since World War II," says the
Journal. The resulting housing
shortage is reflected in the fact that people
spend an average of
just 18 minutes looking at a house before
making an offer.
The Journal attributes the housing shortage to
"bureaucratic
difficulties in getting planning permission --
especially in
protected areas of greenery surrounding
cities." As a result, "houses
are so scarce that people will buy
anything."
This seems likely to be the future of housing
in Portland and other
"smart-growth" cities. It is
increasingly clear that housing
affordability is strongly influenced by the
level of government
planning and regulation.
On August 9, USA Today printed a housing index
developed by Coldwell
Banker for scores of U.S. cities (see
http://www.coldwellbanker.com/html/HPCITable.htm).
The index is based
on the median price of a mid-level,
2,200-square foot, four-bedroom,
two-bath home. Such a home sells for $1.26
million in Palo Alto, CA,
but only $101,000 in Yankton, SD. The table
below presents mid-level
home prices for selected cities along with the
growth rates of the
city and urban area from 1990 to 2000.
A scan of the numbers suggests there is little
correlation between
home prices and growth rates. In the fastest
growing urban area in
America, Las Vegas, the mid-level home sells
for $182,000. Despite
slow growth and the dot-com collapse, housing
prices in the San
Francisco-Oakland and San Jose areas remain
several times that amount.
Table One: Mid-Level Home Prices and City and
Urban Area Growth
Price of Mid- Percent Growth
1990-2000
City
Level Home
City Urban Area
Albuquerque
$190,000
17
20
Anchorage
237,988
15
2
Atlanta
269,780
6
62
Baltimore
243,500
-12
10
Boise
173,500
48
62
Boston
628,333
3
45
Boulder
462,000
11
14
Cheyenne
177,000
6
11
Denver
251,600
19
31
Houston
162,480
20
32
Las Vegas
181,800
85
89
Madison
197,790
9
35
Mesa
180,133
38
45
Milwaukee
222,633
-5
7
Minneapolis
301,566
4
15
Oakland
649,333
7
6
Palo Alto
1,263,250
5
7
Phoenix
209,283
34
45
Portland
275,725
21
35
Raleigh
203,166
33
77
Reno
239,205
35
42
Salt Lake
234,725
14
12
San Francisco 891,000
7
6
Seattle
335,317
9
56
On the other hand, there appears to be a
strong correlation between
land-use regulation and housing prices.
Land-use regulations are
strong in the San Francisco-Oakland and San
Jose areas, in Oregon,
Boulder, Massachusetts, and Maryland. Cities
in these states and
urban areas have the highest housing prices.
Land-use rules are weak
in Nevada, Arizona, Idaho, and Wyoming, and
cities in these states
have some of the lowest housing prices.
Of course, housing price is only part of the
affordability equation.
The other part is income. If incomes in
Seattle are double those in
Las Vegas, then Seattle housing (which costs
slightly less than twice
as much as in Las Vegas) may actually be the
more affordable. Alas
for Seattlites, Seattle household incomes are
less than 50 percent
greater than those in Las Vegas.
The National Association of Home Builders
regularly
(http://www.nahb.org/facts/default.htm)
compares median incomes with
median home prices for nearly two hundred
metropolitan areas. The
"housing opportunity index" is the
percentage of homes affordable to
a family of median income in each metropolitan
area. I compared the
latest edition of the index (first quarter
2002) with the 1990s
growth rates for those areas. These numbers
are in table two at the
end of this update.
The r-squared (a statistical measure of
correlation) between the
index and growth was less than 0.007, which is
no better than random
(i.e., two random number sets easily score r-squareds
higher than
0.007). Thus, housing affordability has little
relationship with
growth. Instead, other factors such as
land-use regulation are
determining affordability.
According to the latest edition of this index,
the nation's least
affordable housing markets are almost all in
California,
Massachusetts, and Oregon, which are all
heavily regulated states.
Affordable fast-growing regions are in
Arizona, Florida, Georgia,
Nevada, and Texas. Except for Florida, all of
these are lightly
regulated; it would be interesting to know how
Florida's land-use
planning maintains affordability.
Defenders of land-use planning argue that
planning makes cities more
livable, so naturally they would be more
desirable and thus housing
would be more expensive. But is Portland
really more livable than
Albuquerque? Or Oakland more livable than Las
Vegas? San Francisco is
a fun place to visit, but is it really four
times more livable than
Phoenix?
Attempts to make housing more affordable
through "inclusionary
zoning" -- an ordinance requiring
developers to offer a certain
percentage of their homes at prices affordable
to low-income buyers
-- will only make the problem worse. The
"affordable housing"
provided by this ordinance will make up a tiny
percentage of the
entire housing market. But developers will
have to increase the cost
of the other homes they build in order to
cross-subsidize the
affordable units. This will drive up overall
market prices as
resellers take advantage of higher new home
costs.
I suspect the main beneficiaries of
inclusionary zoning won't include
many of the low-income people who are most
hurt by housing
regulation. Instead, recent college graduates,
whose incomes are low
enough to qualify for low-income housing but
whose lifetime earnings
are likely to be high, will probably snap up
much of the low-income
housing required by inclusionary rules.
Further research should develop an index of
regulation that could be
directly compared with, say, the NAHB housing
opportunity index.
Several counties in Nevada have no regulation
-- they do not even
require building permits -- and thus would
score a 0 on the index.
The highest level of regulation might be found
in cities such as
Boulder or some parts of the San Francisco Bay
Area that strictly
limit the number of new building permits
issued each year.
The most important thing home builders and
realtors can do, however,
is to put a human face on unaffordable
housing. The South Carolina
Landowners' Association (http://www.saveourlandrights.com/)
is a
coalition of realtors and low-income, often
minority, landowners that
is fighting land-use regulation in that state.
The landowners are
heavily impacted by large-lot zoning and other
planning requirements,
but lack lobbying skills. With the assistance
of realtors and others,
they are having an impact on state and local
politics.
John Templeton, one of the association's
co-founders, was honored in
2000 by the South Carolina Association of
Realtors as the Legislative
Grass Roots Realtor of the Year. This group
provides a model that
people in other regions should emulate.
_________________________________________________________
Randal O'Toole
The Thoreau Institute
rot@ti.org
http://www.ti.org
Please feel free to forward or reprint this
article with appropriate
citation. If you would like to be added to or
removed from the
Thoreau Institute's urban mobility list, send
an email to rot@ti.org.
The Vanishing Automobile CD contains data
regarding population,
densities, highways, transit, and other urban
indicators, along with
the complete book in Acrobat format. Order it
now for only $14.95
plus $1 shipping in the U.S. You can order by
responding to this
email with your name and address; we will send
you the CD with an
invoice. For more information, see http://www.ti.org/vacd.html.
Most back issues of Vanishing Automobile
updates are posted at
http://www.ti.org/vaupdates.html.
Also see
http://www.ti.org/urban.html
for articles and op eds and
http://www.ti.org/urbanmobility.html
for other analyses of urban
issues.
_________________________________________________________
Table Two
First Quarter 2002 Housing Opportunity Index
(HOI) and 1990-2000 Growth
Metropolitan Area
HOI Growth
Akron, OH PMSA
79.9 5.7
Albany-Schenectady-Troy, NY MSA
68.5 1.6
Amarillo, TX MSA
68.7 16.2
Anchorage, AK MSA
75.6 15.0
Ann Arbor, MI PMSA
60.2 18.1
Asheville, NC
67.2 17.8
Atlanta, GA MSA
81.8 38.9
Atlantic-Cape May, NJ PMSA
62.4 11.1
Austin-San Marcos, TX MSA
67.9 47.7
Bakersfield, CA MSA
69.4 21.7
Baltimore, MD PMSA
77.4 7.2
Barnstable-Yarmouth, MA MSA
36.7 20.5
Baton Rouge, LA MSA
81.6 14.1
Beaumont-Port Arthur, TX MSA
80.6 6.6
Bellingham, WA
59.6 30.5
Benton Harbor, MI MSA
70.2 0.7
Bergen-Passaic, NJ PMSA
61.5 7.4
Biloxi-Gulfport-Pascagoula, MS MSA
71.6 16.5
Birmingham, AL MSA
73.4 9.6
Boise City, ID
77.7 46.1
Boston, MA-NH PMSA
48.2 5.5
Boulder-Longmont, CO PMSA
62.4 29.3
Brazoria, TX PMSA
65.2 26.1
Bremerton, WA PMSA
62.5 22.3
Buffalo-Niagara Falls, NY MSA
80.1 -1.6
Burlington, VT MSA
64.6 11.8
Canton-Massillon, OH MSA
83.0 3.3
Champaign-Urbana, IL MSA
87.0 3.8
Charleston, WV
83.2 0.5
Charleston-North Charleston, SC MSA
68.5 8.3
Charlotte-Gastonia-Rock Hill, NC-SC MSA
73.7 29.0
Chicago, IL PMSA
73.7 11.6
Chico-Paradise, CA MSA
40.9 11.6
Cincinnati, OH-KY-IN PMSA
83.6 8.9
Cleveland-Lorain-Elyria, OH PMSA
79.9 2.2
Colorado Springs, CO MSA
60.1 30.2
Columbia, SC MSA
81.5 18.4
Columbus, OH MSA
78.2 14.5
Dallas, TX PMSA
70.5 31.5
Danbury, CT PMSA
60.6 12.6
Davenport-Moline-Rock Island, IA-IL MSA
89.8 2.3
Dayton-Springfield, OH MSA
90.0 -0.1
Denver, CO PMSA
59.6 30.0
Des Moines, IA
84.5 16.1
Detroit, MI PMSA
67.1 4.1
Duluth-Superior, MN-WI MSA
81.1 1.6
El Paso, TX MSA
68.8 14.9
Elkhart-Goshen, IN MSA
94.9 17.0
Eugene-Springfield, OR
38.9 14.2
Fargo-Moorhead, ND-MN
94.5 13.7
Fayetteville, NC
80.0 10.3
Flint, MI PMSA
66.5 1.3
Fort Collins-Loveland, CO MSA
57.2 35.1
Fort Lauderdale, FL PMSA
70.3 29.3
Fort Myers-Cape Coral, FL MSA
74.2 31.6
Fort Pierce-Port St. Lucie, FL MSA
78.4 27.2
Fort Walton Beach, FL MSA
83.8 18.6
Fort Worth-Arlington, TX PMSA
79.7 25.1
Fresno, CA MSA
52.1 22.1
Gainesville, FL MSA
76.1 20.0
Galveston-Texas City, TX PMSA
58.9 15.1
Goldsboro, NC MSA
76.4 8.3
Grand Rapids-Muskegon-Holland, MI MSA
80.6 16.1
Greeley, CO PMSA
41.3 37.3
Greensboro-Winston-Salem-High Point, NC MSA
83.2 19.2
Greenville, NC MSA
71.6 24.0
Greenville-Spartanburg-Anderson, SC MSA
81.5 15.9
Hagerstown, MD PMSA
76.6 8.7
Hamilton-Middletown, OH PMSA
83.9 14.2
Harrisburg-Lebanon-Carlisle, PA MSA
80.4 7.0
Hartford, CT MSA
75.8 2.2
Hattiesburg, MS MSA
68.5 13.1
Honolulu, HI MSA
59.7 4.8
Houma, LA MSA
67.1 6.4
Houston, TX PMSA
67.8 25.8
Indianapolis, IN MSA
88.6 16.4
Jackson, MS MSA
81.3 11.5
Jacksonville, FL MSA
77.8 21.4
Jersey City, NJ PMSA
45.4 10.1
Kalamazoo-Battle Creek, MI MSA
67.0 5.4
Kansas City, MO-KS MSA
86.4 12.2
Knoxville, TN
77.7 17.3
Kokomo, IN
94.8 4.7
Lafayette, IN
86.1 13.2
Lafayette, LA
62.7 11.8
Lakeland-Winter Haven, FL MSA
85.5 19.4
Lansing-East Lansing, MI MSA
80.9 3.5
Las Vegas, NV-AZ MSA
70.2 83.3
Lawrence, MA-NH PMSA
38.1 22.2
Lexington, KY MSA
80.6 18.0
Little Rock-North Little Rock, AR
77.0 13.8
Los Angeles-Long Beach, CA PMSA
34.4 7.4
Louisville, KY-IN MSA
77.8 8.1
Lowell, MA-NH PMSA
35.6 7.5
Mansfield, OH MSA
83.5 1.0
Medford-Ashland, OR MSA
29.1 23.8
Melbourne-Titusville-Palm Bay, FL MSA
84.9 19.4
Memphis, TN-AR-MS MSA
76.1 12.7
Merced, CA MSA
33.0 18.0
Miami, FL PMSA
58.1 16.3
Milwaukee-Waukesha, WI PMSA
76.0 4.8
Minneapolis-St. Paul, MN-WI MSA
76.7 16.9
Mobile, AL
78.7 13.3
Modesto, CA
33.6 20.6
Muncie, IN
89.1 -0.7
Naples, FL MSA
68.8 65.3
Nashua, NH PMSA
58.7 13.5
Nashville, TN MSA
78.6 25.0
Nassau-Suffolk, NY PMSA
74.8 5.5
New Bedford, MA PMSA
39.9 -0.3
New Haven-Meriden, CT PMSA
75.5 2.3
New London-Norwich, CT-RI MSA
70.0 1.0
New Orleans, LA MSA
69.5 4.1
New York, NY PMSA
49.9 9.0
Newark, NJ PMSA
62.1 6.1
Norfolk-Virginia Beach-Newport News, VA-NC MSA
75.5 8.8
Oakland, CA PMSA
23.9 14.9
Ocala, FL MSA
82.8 32.9
Oklahoma City, OK MSA
80.1 13.0
Olympia, WA PMSA
64.9 28.6
Omaha, NE-IA MSA
82.2 12.1
Orange County, CA PMSA
37.7 18.1
Orlando, FL MSA
75.5 34.3
Panama City, FL MSA
80.2 16.7
Pensacola, FL MSA
82.8 19.7
Peoria-Pekin, IL MSA
90.8 2.4
Philadelphia, PA-NJ PMSA
76.7 5.0
Phoenix-Mesa, AZ MSA
75.4 45.3
Pittsburgh, PA MSA
69.4 -1.5
Pittsfield, MA MSA
65.7 -4.5
Portland-Vancouver, OR-WA PMSA
46.6 26.6
Portsmouth-Rochester, NH-ME PMSA
21.5 7.8
Providence-Fall River-Warwick, RI-MA, MSA
76.8 4.8
Provo-Orem, UT MSA
60.7 39.8
Pueblo, CO MSA
64.1 15.0
Punta Gorda, FL MSA
80.3 27.6
Raleigh-Durham-Chapel Hill, NC MSA
75.6 38.9
Reading, PA MSA
79.9 11.0
Redding, CA MSA
50.2 11.0
Reno, NV MSA
70.8 33.3
Richland-Kennewick-Pasco, WA, MSA
54.6 27.9
Richmond-Petersburg, VA MSA
79.3 15.1
Riverside-San Bernardino, CA PMSA
49.6 25.7
Rochester, NY MSA
78.6 3.4
Rockford, IL MSA
84.9 12.6
Rocky Mount, NC MSA
76.4 7.3
Sacramento, CA PMSA
43.7 21.5
Saginaw-Bay City-Midland, MI MSA
82.6 0.9
Salem, OR PMSA
50.4 24.9
Salinas, CA MSA
7.7 13.0
Salt Lake City-Ogden, UT MSA
68.3 24.4
San Antonio, TX MSA
68.5 20.2
San Diego, CA MSA
21.6 12.6
San Francisco, CA PMSA
9.2 8.0
San Jose, CA PMSA
20.1 12.4
San Luis Obispo-Atascadero-Paso Robles, CA MSA
13.0 13.6
Santa Barbara-Santa Maria-Lompoc, CA MSA
25.2 8.0
Santa Cruz-Watsonville, CA PMSA
8.0 11.3
Santa Fe, NM, MSA
59.6 26.1
Santa Rosa, CA PMSA
15.3 18.1
Sarasota-Bradenton, FL MSA
72.6 20.5
Seattle-Bellevue-Everett, WA PMSA
63.1 18.8
South Bend, IN MSA
80.8 7.5
Spokane, WA, MSA
66.1 15.7
Springfield, IL MSA
92.6 6.3
Springfield, MA MSA
76.4 0.7
Springfield, MO, MSA
88.7 23.2
St. Louis, MO-IL MSA
77.6 4.5
Stockton-Lodi, CA MSA
27.2 17.3
Syracuse, NY MSA
82.8 -1.4
Tacoma, WA PMSA
54.7 19.6
Tallahassee, FL MSA
85.1 21.8
Tampa-St. Petersburg-Clearwater, FL MSA
77.4 15.9
Toledo, OH MSA
81.6 0.7
Trenton, NJ PMSA
68.4 7.7
Tucson, AZ MSA
70.4 26.5
Tulsa, OK MSA
77.5 13.3
Vallejo-Fairfield-Napa, CA PMSA
17.9 15.0
Ventura, CA PMSA
36.9 12.6
Vineland-Millville-Bridgeton, NJ PMSA
85.6 6.1
Visalia-Tulare-Porterville, CA MSA
63.6 18.0
Washington, DC-MD-VA-WV PMSA
78.3 16.6
Waterbury, CT PMSA
62.7 3.3
West Palm Beach-Boca Raton, FL MSA
72.6 31.0
Williamsport, PA MSA
81.4 1.1
Wilmington-Newark, DE-MD PMSA
89.4 14.2
Worcester, MA-CT PMSA
57.4 6.9
Yolo, CA PMSA
38.9 19.5
Youngstown-Warren, OH MSA
85.8 -1.0
Yuba City, CA MSA
47.2 13.5
Yuma, AZ MSA
67.5 49.7
HOI represents the percentage of homes in each
region that is
affordable to a family of median income in
that region.
Growth is the population growth in percent
between the 1990 and 2000 censuses.
MSA is metropolitan statistical area and PMSA
is Partial MSA. MSAs
and PMSAs are drawn along county boundaries.