“Texas has a well-earned reputation as a place that builds.
The state built 16 percent of the country’s new housing last year despite being home to 8 percent of its population, according to data from the National Association of Home Builders. The Lone Star State managed to build over twice as much housing as the more populous, more expensive California.
Two decades of robust population growth and COVID-era price hikes have nevertheless pushed up Texas home prices and rents. The Legislature is considering a series of reforms intended to keep housing costs down and the growth machine running.
This past week, the Texas Senate approved a bill that allows homes to be built on smaller lots. In the past month, it’s also passed bills that legalize accessory dwelling units (ADUs) statewide and allow private parties to issue building permits.
“The goal is to get government out of the way and allow the private sector to increase the supply of housing so that we can meet demand and bring down the cost,” says James Quintero of the Texas Public Policy Foundation, a free market think tank.
Local minimum lot size rules can require homes to sit on lots of 5,000 square feet, 10,000 square feet, a whole acre, or even more. Satisfying these requirements means builders have to consume more land than they otherwise would. They end up building larger, more expensive homes to compensate for those higher land costs.
“The larger the lot size, the larger the price tag,” says Quintero.
There’s a growing body of evidence that Texas builders would make use of smaller lots if they were allowed.
One 2019 study of minimum lot sizes in several Texas suburbs found that typical lot sizes are concentrated at the legal minimum size. Builders also make frequent use of flexible “planned unit developments” to build housing on lots smaller than the legal minimum.
In famously unzoned Houston, several rounds of reform beginning in the late 1990s shrank minimum lot sizes to just 1,400 square feet. The result was a building boom that produced 80,000 new homes in the already growth-friendly city, according to a recent study published by George Mason University’s Mercatus Center.”
“Roughly 40 percent of American millennials have four-year college degrees, and if there’s one thing these highly educated young people have liked to do over the last 15 years, it’s move to big cities.
Researchers find they (well, we) have accounted for more than half the population increase in “close-in” urban neighborhoods in the country’s largest metro areas since 2010, and they credit our migration (and our taxes) with accelerating urban revival. We don’t have to guess as to why: Millennials like diverse, walkable environments with good public transit and bike lanes. They like the rich cultural amenities, including bars, restaurants, and concert venues. And they like the higher-paying work opportunities available.
All this might make you think millennials have moved to cities permanently. But as they get older, the number of urban children has continued to drop. Lower birth rates are part of the story, but economists say the strong correlations with population shifts strongly suggest that “out-migration” of cities explains a big portion of the loss. In other words, millennials now in their mid-30s and 40s with young kids have started decamping for suburbs to raise their families.”
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“the choice to stay in the city or move to the suburbs doesn’t feel much like a choice at all. There simply aren’t many family-oriented housing options in cities, let alone ones young couples could afford.”
“The modest increase in housing production can be largely explained by how marginal many of these missing middle reforms have been.
Often, cities will legalize missing middle housing without allowing the new multi-unit buildings to be much larger than the single-family homes they’d replace. That means a builder faces all the costs of tearing down an old unit without the ability to add much additional revenue-generating floor space.”
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“Another problem facing missing middle home construction is a whole thicket of nonzoning rules and practices that assume new construction will either be single-family homes or larger apartment buildings.
“Zoning regulations control what kinds of buildings can be constructed where, and then what activity can happen inside them. They effectively socialize private property while controlling even the most mundane features of our physical environment and daily routines. Zoning rules flip property rights on their head, curtailing the owners’ ability to do what they wish on their land. In exchange, they sometimes give people near–veto power over what happens on their neighbors’ property.
Whether a disused shed stays cluttered with rusty lawn care equipment, is turned into a home business, or is converted into an in-law suite might not seem like a major decision. But the existence of a whole body of laws dedicated to controlling that decision tells you how far zoning reaches into American lives. The consequences of these laws are as far-reaching as they are devastating.”
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“The immediate costs of zoning are straightforward: By limiting new housing construction, zoning drives home prices up in—and drives people out of—the most in-demand neighborhoods. By micromanaging commercial activity, zoning prevents entrepreneurs from trying new things, making everyone poorer in the process.”
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“The conventional view of the Great Recession is that excess demand for housing—caused by some combination of loose monetary policy, government-subsidized credit, and unscrupulous lenders—inflated a bubble that inevitably had to pop. Leftists, liberals, libertarians, and conservatives can all find something to agree with in this theory.
But it’s wrong, according to Kevin Erdmann, a senior affiliated scholar at George Mason University’s Mercatus Center. Erdmann has advanced a heterodox theory that this century’s most serious economic contraction before the pandemic can be traced back to zoning laws in the most in-demand cities.
In a 2020 paper on the origins of the recession, Erdmann and economist Scott Sumner argue that monetary policy was not exceptionally loose in the lead-up to the financial crisis and that new residential investment was not high by historic standards. Most of the toxic assets and bad mortgages originated after housing prices had already started to decline.
Erdmann and Sumner also point out that prices were increasing fastest in coastal “closed access” cities like New York and San Francisco, where the economy was booming but restrictive zoning regulations prevented much new housing from being built. The result was an out-migration of lower-income people to “contagion cities” in Nevada, Florida, Arizona, and other places where home building was less regulated. Erdmann and Sumner lay the housing crisis directly at the feet of NIMBYs—”not in my backyard” activists who opposed the construction of new housing.
“The NIMBY phenomenon that led to housing scarcity in closed-access cities induced households to migrate from large multi-unit buildings in dense coastal cities to single-family homes in cheaper cities,” write Erdmann and Sumner. “The primary source of demand was households looking to economize on housing consumption by moving out of the expensive coastal cities.”
Think of Mark and Patricia McCloskey as a class of activist. The McCloskeys of San Francisco, Los Angeles, and New York City tried to protect their views, their property values, and their relatively low-traffic streets with zoning laws that banned apartments across whole swaths of the city. Lack of supply met huge demand, hiking prices in the process. Middle-class people were effectively priced out of urban apartments because those apartments were simply never built.
So instead of living in Los Angeles and New York City, middle- and lower-income people moved to Las Vegas and Phoenix. That influx of demand saw prices spike and builders respond by throwing up lots of new homes. The glut of new homes in inexpensive Sun Belt cities wasn’t just the result of an overinflated financial system. It was a response to real demand from cost-burdened coastal emigrants.
All this had massive macroeconomic consequences. Erdmann and Sumner argue the Great Recession was ultimately caused by federal officials misinterpreting rising home prices as a bubble rather than the result of a real shortage. So they tightened monetary and lending policy, and that tipped a rational building boom into an artificially induced recession.
It’s an out-of-the-box theory that deemphasizes or disputes many common libertarian diagnoses of the Great Recession that center on an overly profligate Federal Reserve or on reckless financial institutions banking on an inevitable federal bailout. But it does explain how the country was able to go from a supposed glut of housing oversupply to a shortage of somewhere between 4 million and 20 million homes. The glut was overinterpreted—and the shortage never went away.”
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“When NIMBY zoning rules cut off industries from innovation-breeding cities, the economy’s productivity as a whole suffers. Fewer inventions are created; fewer new ideas catch on. The higher wages and standards of living all that growth would have created do not materialize.
In “The Housing Theory of Everything,” a 2021 essay for Works in Progress, Sam Bowman, John Myers, and Ben Southwood cobble together the most recent research to estimate that zoning restrictions cost the average American somewhere between $8,800 and $16,000 a year in foregone income.”
“It’s certainly true Canada has some of the most unaffordable housing prices in the developed world. Average home prices are ten times average incomes. Compare that to the U.S., where median home prices are 4.3 times median incomes, per National Association of Realtors’ data. OECD figures show that Canadian home prices have grown 43 percent faster than incomes since 2015.
And as homes have gotten more expensive, foreign homebuyers have become an increasingly popular scapegoat.”
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“foreign buyers make up only 5 percent of homeowners in the country. Squeezing out such a marginal part of the market probably won’t have a huge effect on prices.
Foreign buyers made up around 4 percent of New Zealand’s housing market when the country implemented a ban on nonnative buyers in 2018. Home price growth continued unabated after the ban.
A heavy tax on foreign home purchases in British Columbia has managed to reduce “foreign-related” purchases from 10 percent of all sales to between 1 to 2 percent. One study of the policy showed it reduced home price growth by 1 percent, and that minimal benefit faded after a few months.
Such are the pitfalls of trying to marginally curb demand in a hot market without enough supply. Behind every eliminated foreign buyer are multiple domestic home purchasers competing over an insufficient stock of homes.
Canada’s national housing finance agency estimates the country will be short some 3.5 million homes by the end of the decade. That’s within spitting distance of the U.S.’s own estimated shortage of 4 million homes—a country with nearly ten times Canada’s population.
The country has all the limits on supply that the U.S. does, including density restrictions in the urban core and growth boundaries on the exurban fringe. Both prevent new housing from being built to meet demand. As a result, prices in the country stay stubbornly high.
Canada’s local and provincial governments are starting to address this problem with proposals to loosen zoning restrictions. Done right, that will unleash developers’ ability to add much-needed supply.
At the federal level, it appears more politically practical to run with unproductive bans and to scapegoat foreigners.”
“New York has some of the most restrictive local zoning regimes in the country, resulting in rock-bottom rates of housing construction and sky-high prices.
Now, Democratic Gov. Kathy Hochul is proposing to fix this sad status quo by allowing developers to bypass city and town zoning codes altogether and get their housing projects approved directly by a fast-tracked state process.
“Through zoning, local communities hold enormous power to block growth,” said Hochul in her annual State of the State address yesterday. “People want to live here, but local decisions to limit growth mean they cannot. Local governments can and should make different choices.””