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

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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.


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