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.
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|
|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.