Lousy Neighborhoods, Not Lax Zoning, Make Sunbelt Houses Cheaper

The middle class is getting priced out of liberal cities, while red-state urban areas remain affordable. Does that mean our cities should be less like tightly regulated San Francisco and more like permissive Houston? It’s a common argument — but it doesn’t fit the facts.

Modesto: It’s not quite San Francisco. (And it’s a whole lot cheaper.) Photo: Carl Skaggs/Wikipedia

To start with, Houston is hardly a paradise of deregulation. In practice, local experts explain, the city limits new building with a heavy hand. Zoning (thinly disguised as a special form of deed covenant) is in some ways even tighter than elsewhere — a subdivision can downzone itself by vote of its homeowners, even when a minority objects, and the elected city government has no power to override neighborhood decisions.

If the Houston housing market is no freer than San Francisco’s, what explains the lower prices in Texas? Supply and demand set house prices, and demand (the lack of which makes housing so affordable in Detroit) is strong in Houston.

These price comparisons have a buried conceptual flaw. They look at the average of all houses in the region, new and old. But the added supply that demand calls forth (what economists refer to as “at the margin”) consists of new houses alone. A shortage of supply should show up, most directly, in the price of new houses.

In American urban areas, most land is reserved for single-family houses. Close-in locations fill up first, so the marginal unit of supply is a newly built detached house on the exurban fringe.

How much does that new house cost? The table below shows the asking price (from Zillow) for a minimally featured new 3-bedroom, 1750-square-foot house on the outskirts of some major cities, along with the median sale price of single-family houses throughout the area. Affordability is measured by the ratio of house price to the metropolitan area’s median household income. The areas were selected to have around the same population, so that the commute (a painful one in all cases) would be a comparable deterrent to living at the fringe.

Metro area Median house price (000) Ratio to median income Fringe location New 1700 sq ft house price (000) Ratio to median income
Boston 398 7.5 Manchester NH 280 5.3
Houston 204 4.6 Cypress 185 4.1
Phoenix 199 4.4 Goodyear 169 3.8
San Francisco 770 12.2 Modesto 260 4.1
Washington 403 7.0 Charles Town WV 210 3.7

These figures will surprise many. The choice of fringe locations is certainly open to discussion, but there’s no question that the affordability of new single-family houses varies among cities far less than the average house price. If you insist on a brand-new house and don’t mind a long commute, San Francisco is as affordable as Houston.

Median prices cannot be ignored, of course. The information they convey is about demand. San Franciscans are willing to spend much more to avoid living in Modesto than Houstonians will pay not to live in Cypress.

Why might that be? There’s a straightforward explanation: San Francisco is much nicer than Modesto, while inside-the-loop Houston is only slightly preferable to Cypress. In the Bay area, Washington, and Boston, transit and walkable neighborhoods make close-in homes desirable. In southwestern sprawl any one neighborhood is much like another if houses are the same size and demographics are similar. Geometry limits the supply of single-family houses near the center, so greater demand for intown living in coastal cities translates into higher prices.

There’s another aspect to this analysis: the supply of multi-family housing. With apartments, unlike houses, many people can fit into a small area. In theory, the large-scale building of new apartments could drain off demand for in-town single-family houses and lower their prices.

The zoning of coastal cities does severely limit how many apartments can be built. Indeed, such restrictions have everything to do with the high cost of apartments in San Francisco. But they don’t explain why detached houses are cheaper elsewhere.

For one thing, it’s not clear that Sunbelt cities make apartments much easier to build. For another, these cities haven’t built enough apartments to soak up the demand for single-family houses. If they had, Houston and Phoenix would be denser than Boston and San Francisco. No one thinks packing more people onto less land is what makes Sunbelt homes affordable.

The reason houses are cheap in Houston and Phoenix is that sprawling cities aren’t such nice places to live. Living closer to the center offers few of the advantages of city life, so people won’t pay a large premium for in-town houses.

With so many cities failing to deliver the benefits of urbanism, the country as a whole suffers from a severe shortage of good neighborhoods. That shortage is driving up prices in the desirable urban places we have. When San Francisco is not affordable, it’s a sign we need more San Franciscos.

Ben Ross is the author of “Dead End: Suburban Sprawl and the Rebirth of American Urbanism” and a longtime transit advocate in Maryland.

  • valar84

    I understand the point but I’m not sure it supports the argument. Pointing out that houses on the fringe aren’t really much more expensive is a valid point, and that in sprawling cities where inner neighborhoods are no more desirable than the fringe, the value of housing closer to downtown is likely to not be significantly higher than that on the fringe as both compete against each other (and in some cases like Kansas City, MO, you have entire inner neighborhoods dying because people prefer buying new houses on the fringe than old houses near downtown).

    However, I don’t think it follows that regulation isn’t the important factor. Regulation is extremely important in that it restricts new housing starts in the central, desirable neighborhoods. It also results in much higher costs of construction for new units there. The cost of new constructions is what creates a ceiling to the price of current housing, if new constructions are impossible or very expensive, then the sky is the limit, housing is in a shortage situation.

    So tightly regulated housing in highly desirable locations is probably responsible for high housing prices.

  • Ben Ross

    My point is that you need to distinguish between single-family and multi-family housing, and between new and old houses.

    It’s geometry, not regulation, that puts an upper limit on the number of single-family houses that can fit in an acre. (Yes, minimum lot sizes sometimes prevent splitting lots in half, but this is a minor source of supply in areas that are already built up.) If anything, zoning increases the supply of close-in single-family houses by preventing their replacement with denser multi-family housing.

    To be sure, the model I’m proposing doesn’t apply at all in cities where inner neighborhoods are dying. There the marginal unit of supply is an old house that isn’t torn down rather than a new house that gets built.

  • Alex B.

    “If the Houston housing market is no freer than San Francisco’s….”

    This is the conclusion based on the simple fact that Houston has some regulation? I’m afraid this is not supported by the evidence at all.

    I understand the point you’re trying to make about the quality of life in places like San Francisco, but the logic you use to get there makes little sense. For example:

    “For another, these cities haven’t built enough apartments to soak up the demand for single-family houses. If they had, Houston and Phoenix would be denser than Boston and San Francisco.”

    No. Houston is indeed growing denser; the measure there is in how Houston has changed, not an arbitrary comparison to existing housing in Boston.

  • Alon Levy

    Cypress is 44 km from Houston. Modesto is 147 km from San Francisco. The reason San Franciscans spend so much money to avoid living in Modesto is that nobody wants to commute 2 hours in each direction.

  • Ben Ross

    Difference in driving times is less stark than the difference in distance. Average commute time is 37 min around Cypress, varies 30-45 min in west Phoenix exurbs, 40 min in Charles Town (neighboring zip codes with higher travel times are around train stations on the slow MARC line), around 40-55 minutes in Tracy CA. (Remember that most car commuters in all these areas are going to suburban jobs.)

    No doubt the differences in driving time to the exurbs are a factor, but I can’t buy the conclusion that they are big enough to explain the great differences in Metro-area house prices. A quantitative study to determine the relative contribution of driving-time versus center-city attractiveness would be great, but I don’t think it would be easy to do.

    Data from this great map:

  • Alon Levy

    I think you answered your own question with the parenthetical remark that “most car commuters in all these areas are going to suburban jobs.” In Cypress, people have good auto access to a wide variety of suburban jobs as well as jobs in the Houston CBD and favored quarter. In Tracy (which is two thirds of the way from San Francisco to Modesto), people only have good access to jobs in a particular slice of suburbs, which isn’t even in the favored quarter; the access to San Francisco itself and to the Silicon Valley favored quarter is crap, so people spend 40-55 minutes driving not to SF but to lower-grade job centers.

    The problem with a quantitative study about center-city attractiveness is that there are sort-of natural experiments about it, and incomes dominate attractiveness. Favored-quarter American suburbs aren’t pretty (Dobbs Ferry, ew); they’re still incredibly expensive, because of the schools and job access. In the other direction, Berlin, which most people think is a nice city, is quite cheap, because its incomes are low by the standards of anywhere in West Germany; that’s why it attracts low-income groups like artists and Israelis. It’s harder to do this with central US cities, since niceness correlates with building restrictions too strongly; but the peculiarities of the US Sunbelt don’t really exist elsewhere in the first world, so we can freely compare Berlin (low incomes, high attractiveness) with Frankfurt (high incomes, low attractiveness).

  • Dan

    It’s the easier building codes, easier zoning and the pro development that makes houses in the sunbelt cheaper, not lack of demand. When supply meets demand, housing prices stay in check. That is what happens where I live in TN. Many places like NYC had more affordable housing (1950’s) when developers were allowed to build more units to meet demand, significantly more. Likewise, California in the 1950’s was no more expensive to buy a home in than any other part of the Country. I am all for compact neighborhoods and complete streets, but let’s be honest about things.

  • Anne A

    When I lived in the Manchester, NH area, it amazed me that some of my neighbors would make driving commutes of 40-50 mi each way (often 1.5-2+ hrs each way) into Boston or Boston suburbs. Existing housing in southern NH was generally much better than comparable housing in/near Boston, but the commutes were so brutal that those folks generally had no life outside their jobs & commutes. Many of the towns around Manchester were pleasant, but too many people commuting into the city didn’t get to enjoy their surroundings.

  • “San Francisco is much nicer than Modesto”–Not if you can’t afford anything in San Francisco it isn’t. Nor is it if you have or plan on children.


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