What Is The Secret To Houston's Housing Affordability?

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Interesting article from the WSJ which asks why Houston's housing prices have remained stable through the recent boom, and current bust.

Houston Missed the Real-Estate Boom of East
And West Coasts, but Now It's Payback Time
By THADDEUS HERRICK
November 6, 2006; Page A2

HOUSTON -- This sprawling city missed the real-estate boom that sent home prices soaring on the East and West coasts. Now, with much of the nation's housing market in retreat, it has yet to feel even a tremor.

In September, local sales of single-family homes and condominiums were up 17.7% from a year earlier, logging their 32nd straight month of increase, according to the Houston Association of Realtors. The median price of an existing single-family home: $143,400, up 3%.

By contrast, nationwide sales of residential real estate fell 14.2% in September, according to the National Association of Realtors. Home prices nationally were down 2.2%, retreating in such former hot spots such as Washington, Boston and San Francisco. The national median sales price for September for existing single-family homes was $219,800, according to the Houston Association of Realtors.

Houston's gains are nothing like those seen in the past decade in the Northeast and California, but that may be the secret to Houston's success and the reason a bubble is unlikely to develop here. Land here is abundant, and the city has some of the least-restrictive land-use and construction rules in the nation. Those factors help supply to keep pace with demand and keep prices within reach of a broad range of potential buyers.

"We haven't had a bad year in the past decade," says Lorraine Abercrombie, chairwoman of the local Realtors group and marketing director for Greenwood King Properties.

Houston's model is in stark contrast to cities such as Boston and San Francisco, which have strict zoning, exacting building codes and laws governing historical preservation. Some economists, including Edward Glaeser of Harvard University, say excessive regulation in such cities has slowed construction to the point where demand has outstripped supply, fueling a run-up in home prices.

In the once-sizzling markets where home prices are falling, housing costs are double, triple or even quadruple those of Houston. The danger, says Dr. Glaeser, is such places have priced out today's highly skilled "knowledge workers," forcing them to live in a more affordable locale where their contribution to the economy might not be as great. "These are places where only the elite can live," Dr. Glaeser says.

Not so Houston. Confined by neither oceans nor mountains, the Houston metropolitan area has plenty of room to spread out. What is more, the city has no zoning, weak historical-preservation rules and few tools to preserve open space.

The result is unfettered growth. For that, too, there is a price to be paid.

Houston lacks the historical charm of a city such as Boston and the natural beauty of a place such as San Francisco. In recent years an increasing number of Houston residents have warned that the city's affinity for strip malls, freeways and endless subdivisions may be putting it at a disadvantage in attracting talented workers.

Even so, Houston's economy is humming, thanks in part to a sustained boom in oil and gas and the city's burgeoning medical industry, which attracts patients from all over the world. In addition, the Hurricane Katrina evacuation in 2005 brought tens of thousands of refugees here, pushing up retail sales and lowering apartment-vacancy rates. Most of the Katrina refugees weren't wealthy enough to buy homes, however.

The Houston metropolitan area has added 420,000 jobs since 1995, according to the Greater Houston Partnership while the 10-county metropolitan statistical area topped 5.2 million people in July 2005, up about 11% from the 2000 Census count, according to the Texas State Data Center.

Affordable housing has played a significant role. James Gaines, an economist at the Texas A&M University's Real Estate Center, says a Houston developer can be "cutting roads and building houses" within a year of buying 500 acres. The same project would take a developer in Florida three years and as many as eight years in California, substantially pushing up the price, says Dr. Gaines.
[Chart]

The Houston Association of Realtors reported total property sales -- everything from single-family homes to country homes to lots listed on the Multiple Listing Service -- numbered 7,163 in September, up 17.8% from a year earlier. Sales of new and existing single family homes were up 19.3% to 5,954. The pace of home sales is also picking up. The trade group says the area has a 5.5-month supply of unsold homes, down slightly from August.

The national outlook isn't so bright, with some economists forecasting that sales of new homes are unlikely to start rising again before early 2008. A joint survey by consulting firm Global Insight and Cleveland bank holding company National City Corp. showed that 67 metropolitan areas experienced price declines in the second quarter this year, and not just those that enjoyed the boom. The Midwest, for example, showed the highest concentration of falling prices.

The survey also showed slower home-price increases nationally in the past year, with the most rapid slowdown coming in high-price markets such as California, Florida and the Northeast corridor. Nearly 70% of the 317 metropolitan areas surveyed showed a decline in appreciation during the period.

Texas had six markets where home prices rose at a rate of between 6% and 12% and another nine markets where prices increased 12% or more, the survey showed. Richard J. Dekaser, chief economist for National City, says, "It's like revenge of the nerds."

Write to Thaddeus Herrick at thaddeus.herrick@wsj.com1
 
A related article:

http://www.boston.com/realestate/news/articles/2006/11/05/smaller_homes_are_nonstarters/

Smaller homes are nonstarters
Developers cite restrictive zoning for lack of affordably priced homes

By Andrew Caffrey and Charlie Russo, Globe Correspondent | November 5, 2006

Can the starter home be saved?

That little box of a house on a postage stamp of a lot, selling for $300,000 or less, has become the poster child for some of the biggest problems facing Massachusetts.

Unable to afford the third-most-expensive housing market in the nation, young people are moving away, costing Massachusetts the human capital needed for future economic growth. Intensely studied and hotly debated, the lack of moderately priced housing is finally being addressed in a variety of ways. Under new state programs and zoning changes in some communities, there is a lot more new housing coming over the next decade. But many of the new properties will still cost far more than what working class and young families can afford.

"I think in two years, we'll be able to look back and see a large breakthrough on some of the bigger discussion issues," said Andrew Gottlieb , chief of the Office for Commonwealth Development, the state agency that is pushing a variety of innovative programs and tools to resolve the housing crisis, such as providing funding and planning assistance to communities that allow large residential and mixed-use projects in their town centers.

One of the major points of contention is government regulation, particularly at the local level. Researchers and home builders blame municipalities for having zoning regulations, such as minimum lot sizes of an acre or more, and building requirements that drive up land costs and encourage McMansion-style homes on large lots that eat away at open space.

(Follow URL above for full article)
 
Just got back from Houston (for work). Crazy highways, interchanges and strip malls galore, for sure. I've driven more in the past week than I have in the past 2 years. There were some Europeans I met with who did not know what it entailed to have a conference in Houston. They did not rent a car, and had a rough time.

Having said that, downtown Houston is looking good. Decent grid. Lots of surface parking lots still though, but also lots of development. They have a light rail line "MetroRail" based on Siemens S70 vehicles that is actually extremely impressive, and they are building more. Uses all the latest technology and best operating practices: Proof of Payment, so the dwell times were about 20 seconds typically; signal priority or outright preemption at all intersections; decent station spacing; the downtown corridor was a narrow pedestrian-oriented transit mall that clearly took space and priority away from cars. Supposedly progressive Boston can't even accomplish any of this.

I figure that the average travel speed is about 15 mph, which is stellar compared to Boston Green Line's 9 mph. That's rivaling NYC subway's 18 mph average, which is amazing considering that MetroRail is almost totally at-grade. It's no wonder that MetroRail has the 2nd highest boardings-per-mile for light rail in the USA, after MBTA of course.

Houston does have some "zoning" in that they restrict density (by FAR) and require parking. In other words, the two worst features of zoning. And there's restrictive covenants. However, maybe there's some hope that the areas near the stations can be more malleable, thanks to the lesser power of NIMBYs. And I'm so impressed by the competence of MetroRail operations that I agree with whoever it is that said that Houston has more going for it than Austin, where they can barely run a commuter light rail diesel line once an hour, and proper light rail gets shot down over and over.

Maybe in ten years Houston will have a completely different character, at least in the core and around the stations. It's still pretty crummy, especially out in the burbs, but this could be a great experiment to see if anyone can still build a proper city, almost from scratch, anymore. In Texas, no less.
 

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