Prices in Houston remained flat, despite the extreme volatility of housing markets worldwide, because construction responded to changing demand. In 2006, during the height of the boom, Harris County permitted more than thirty thousand units, and that building helped keep prices low. By 2008, building had dropped in half, and that fall in construction cushioned the drop.
Elastic housing supply usually limits price bubbles. From 1996 to 2006, on average, real prices rose by 94 percent in twenty-six of America’s cities where building is most difficult, but only by 28 percent in America’s twenty-eight least supply-constrained cities. In the boom of the 1980s, real estate prices went up by 29 percent in the supply-restricted areas, but only by 3 percent in the elastic places. Flexible housing supply isn’t a perfect antidote to homebuyer madness; there are few barriers to building in Las Vegas and Phoenix, yet these places experienced extremely large and painful price swings. But elastic supply does make such episodes less likely.
Texas builders can supply so many new, inexpensive homes because the physical cost of building a standard house in Houston is about $75 a square foot. Why should housing in Texas, or anyplace with abundant land, cost much more than the cost of building a home? Texas and California together have so much space that if the whole world lived in those two states, each person would have more than 1,600 square feet of land. America’s abundance of land has meant that in much of the country, homes typically cost no more than 25 percent more than the physical costs of construction.
Yet in much of coastal America, home prices are dramatically higher than construction costs. In Los Angeles, construction costs are 25 percent higher than in Houston, but housing is over 350 percent more expensive in Los Angeles. It’s harder to compare Houston with Manhattan because it’s so much more expensive to build up than it is to build out. Yet in recent years, the prices of new Manhattan condominiums have been more than twice the physical cost of building up. Something other than building costs is responsible for high prices in coastal America.
The most straightforward explanation for high prices in coastal America is that land is scarce and therefore expensive. There certainly isn’t much land in Manhattan, which is why people go to the expense of building up. But it doesn’t take more land to add an extra story to a high-rise, so the lack of land can’t explain why Manhattan prices are so much higher than the costs of adding an extra story. Moreover, in expensive suburban areas, like Santa Clara County and Westchester County, New York, there is actually more land per household than in Houston. In Harris County, Texas, there are 3.6 people per acre. The comparable figures for Westchester and Santa Clara counties are 3.44 and 2 people per acre respectively. In those places, there’s plenty of land; it just isn’t available for construction.
All land isn’t equal. Flat land is easy to build on; hills are a problem. Wharton economist Albert Saiz’s work on local topography has found that natural barriers to building, including mountains and water, help explain the differences in housing supply across metropolitan areas. Houston is flat, and so is most of Westchester County, but much of Silicon Valley is far more vertical. Yet even if 60 percent of Santa Clara County is too hilly to be built upon, there are only five people and two homes on every acre of remaining land, which hardly seems like overcrowding.
There is a land shortage in Santa Clara County and throughout much of coastal America, but that shortage is the handiwork of regulation, not nature. Together with Bryce Ward and Jenny Schuetz, I’ve tried to measure the effect of land-use regulations throughout greater Boston. Out of 187 cities and towns, the majority had average minimum lot sizes that were greater than one third of an acre. Most of these places had 10 percent or less of their land that could be used to build multiunit developments.
Over the past thirty years, Massachusetts towns have imposed stricter and stricter rules preventing new development and subdivisions. One municipality forbids building anyplace where there’s a “wicked big puddle.” Protecting wetlands is important, but taken to this extreme, environmentalism becomes mere NIMBYism, the reflexive opposition to any new building nearby.
In Massachusetts, the more land-use restrictions there are, the less new building there will be. Each extra type of rule is associated with about 10 percent less building. Across areas, a ten-thousand-square-foot, or quarter-acre, increase in minimum lot size is associated with a 10 percent drop in construction between 1980 and 2002. This shouldn’t be a surprise. The amount of land is fixed. If you require more land per home, you get fewer homes and higher prices. That ten-thousand-square-foot increase in minimum lot size comes with a 4 percent increase in prices. California’s growth controls have similarly reduced the amount of new construction and pushed prices up. Indeed, the same pattern applies to the nation as a whole. In America’s expensive coastal regions, housing supply is restricted not by lack of land but because public policies make it hard to build.
By contrast, Houston has always been prodevelopment. The city was founded by two real estate developers from upstate New York who promised prospective settlers fresh water and invigorating ocean breezes. Over the next 150 years, local business interests led by the Houston Chamber of Commerce have coaxed and prodded Houston into becoming an urban giant. Above all, the city’s leaders have made sure that nothing stands in the way of new building. Houston is unique among all American cities in that it lacks a zoning code. More than in any other place, Houston’s developers have successfully argued that restrictions on development will make the city less affordable to the less successful. These arguments are patently self-interested, but they are also correct. Houston’s freewheeling growth machine has actually done a better job of providing affordable housing than all of the progressive reformers on America’s East and West coasts.
In the early 1920s, New York was also a builders’ paradise, and as a result, housing stayed affordable. In the postwar years, New York increasingly restricted development and tried to make up for the lack of private supply with rent control and public housing. This strategy failed miserably, as it has throughout Europe. The only way to provide cheap housing on a mass scale is to unleash the developers.
Levittown, The Woodlands, and hundreds of other large developments can be built so cheaply because they are built on a large scale. Mass production has made clothing and cars affordable for everyone; it has the same effect in the housing market. Places like New York and San Francisco, which claim to care about providing low-cost housing for the poor, are generally unaffordable. Texas, which has never shown any commitment to social housing, leads the country in building inexpensive homes. If older cities with high prices are going to compete, then they must act more like Houston and allow more building.
What’s Wrong with Sprawl?
In the nineteenth century, economics drove the growth of America’s cities. People moved to places, like Chicago, that were economic engines. In the twentieth century, an increasingly affluent population started making choices based on quality of life as well as wages. Los Angeles’ early growth came from its oil wells and its port, but also from the allure that its climate had for retiring Midwestern farmers or footloose authors, like L. Frank Baum and Edgar Rice Burroughs. When people move to places that are more productive, the country as a whole becomes more economically vibrant. When people move to pleasant places, they enjoy life more, and when they move to more temperate climates, they use less energy.
But in the late twentieth century, public policies, both national and local, started playing an outsize role in urban change. As we’ve seen, the fastest growing places in the United States—Atlanta, Dallas, Houston, and Phoenix—are growing not because of high wages and temperate climates but because their governments are friendlier to new development than older communities in California and the Northeast. The path of America’s future is being determined by the whims of local zoning boards that don’t want more people living in their highly productive, pleasant communities.
A different set of policies has played an equall
y important but largely hidden role, pushing people to suburbanize. I am sufficiently unusual that I’m always cautious about using my own life to infer anything about anyone else’s, but my decision to suburbanize was a conventional one, driven for the most part by common factors. At the start of this chapter, I listed the forces that brought me to a suburb: living space, soft grass for spill-prone toddlers, a desire to diversify my life with greater distance from my employer, a fast commute, and good schools. Of these five factors, only two—the grass and distance from Harvard—are independent of public policies.
My wife and I were pretty sure that we wanted to live someplace where we could eat out anonymously, but that didn’t necessarily imply living in a suburb. We could have moved to Boston, which is a charming and pleasant city. One of the factors that pushed against Boston is that a five-mile commute from an urban apartment across the Charles River would have been no quicker than a fifteen-mile drive in from the suburbs. If I leave early enough, that drive takes me less than twenty-five minutes, thanks to the interstate highway system, which was generously subsidized by the federal government. My commute itself is on a highway that was funded by tolls, but when I drive to the airport, I rely on a recent expensive extension largely funded by state and federal largesse. As a matter of public policy, I remain skeptical of the $15 billion Big Dig, but I’d be foolish not to use it when I drive to Logan. My commute is also cheap because American governments have, unlike their European counterparts, decided not to heavily tax gasoline.
Another factor that pushed us to the suburbs was the cost of living space. Cambridge strongly restricts new construction, and that keeps prices up, but my suburb is also artificially expensive because of its draconian limitations on new development. The big difference between city and suburb in this case is that the federal government heavily subsidizes home ownership by allowing me to deduct interest on my home mortgage. That subsidy makes owning cheaper than renting, and being pro-home-ownership means being anticity.
The long, passionate love affair between American politicians and home ownership is a curse to the cities that power the American economy. More than 85 percent of people living in multifamily dwellings rent their living quarters. More than 85 percent of people in single-family detached dwellings own them. This connection isn’t a random statistical artifact. It makes sense to have one roof, one owner. When people rent single-family homes, they often take bad care of them. Homes depreciate by 1.5 percent more per year if they are inhabited by renters rather than owners, who work hard to take care of their important asset. By contrast, in multifamily dwellings, dispersed ownership is a big headache. Think of the battles that roil co-op boards. Because dense cities are filled with multiunit buildings, they’re also filled with renters. In Manhattan, 76 percent of housing units are rentals. When the federal government encourages people to own, it is implicitly encouraging people to leave dense cities.
Perhaps the most important factor encouraging suburbanization is our school system. Big cities attract poor people for many good reasons, but educating the children of poorer parents creates stresses for urban school systems. Big-city schools tend to have much lower test scores despite spending per student as much as or more than many suburban school districts. There’s no reason why big cities can’t have great schools. Paris has some of the finest high schools in the world, and many American cities boast superb private and magnet schools. The same forces of competition and density that make big cities havens for excellent restaurants could also make them great places for education.
However, the American public school system essentially puts a public quasimonopoly in charge of central-city schools. A public monopoly that must struggle to provide the basics to hundreds of thousands of less fortunate children will naturally have trouble providing first-rate education for upper-middle-class parents, at least relative to a homogeneous suburb filled with upper-middle-class people. The American public school system, which forces people to move in order to find better public schools, has been another unnecessary curse on cities.
As noted earlier, this problem could be eased by a move either to the left or the right. If the United States emulated France and embraced nationwide quality schooling funded by the state, there would be less reason to flee urban areas. If the United States adopted a large-scale voucher program under which parents could send their children to school anywhere, urban competition would ensure that cities developed better schools, and city dwellers could always send their kids to suburban schools. The current system has its virtues: Local control over small school districts can give the kids in those schools a great education. But for our cities, it has been a disaster.
Suburbs aren’t intrinsically bad, and there’s a lot to like in Houston. For many people, Sunbelt sprawl makes sense. But sprawl of the sort that Houston embodies has been encouraged by mistaken public policies. The fault with Houston’s growth doesn’t lie in the area itself, but elsewhere, in more temperate and economically productive places that have used regulations to stymie development and make housing unaffordable. There’s no sense in blaming the suburbs or the suburbanites. The fault lies in our policies and regulations, which have created incentives that force too many Americans to leave our cities.
The fact that suburbia continues to be artificially boosted by mistaken policies should offer some hope to the anxious urbanist. These policies need not be permanent. In 2005, a tax-reform panel, appointed by a Texan Republican president who repeatedly lauded the ownership society, advocated a major decrease in the size of the home mortgage interest deduction. If federal housing policies become less antiurban, then our big cities will become more appealing.
Moreover, many of the benefits of suburbia may become less important if America continues to grow. The ability to commute to work quickly on vast, uncluttered highways is a plus for many, but as sprawl continues, those highways will become more and more congested. Already we have seen people who highly value their time return to once downtrodden downtown areas like Tribeca to reap the advantages of walking to work.
Today suburban schools are, on average, better than their big-city counterparts. But no immutable law makes this so. Well-run city schools that harness the power of urban human capital and competition can, and sometimes do, beat the suburbs. It once seemed that big cities would always be synonymous with crime, but that’s no longer the case. There could certainly come a time when cities are widely seen as the best places to educate our children.
Eliminating the mistaken policies that hurt our cities makes sense, because sprawl has costs as well as benefits. Like most other growing places, sprawling suburbs must struggle with water issues, sanitation, and congestion. Perhaps the biggest economic question is whether suburban office enclaves can generate the same degree of intellectual excitement as traditional downtowns. These areas involve far fewer random interactions, and they often concentrate in a particular industry, which reduces the chances of cross-field leaps in innovation.
Most worrisome of all is the prospect that the developing world will adopt the car-based lifestyle that reigns in much of America. Few cities feel as immense as São Paulo, with its scores of separate high-rise centers stretching out from the inner city. The urban region goes on for miles and miles. Many of São Paulo’s suburbs are the traditional poor settlements of the developing world, whose people ride public transit to work and live in small homes that would be substandard in the United States or Europe. But there are also plenty of wealthier enclaves that look like Houston’s suburbs. You can find similar places around Bangalore, Mumbai, Cairo, Mexico City, and pretty much any growing city throughout the world.
If the entire world starts looking like Houston, the planet’s carbon footprint will skyrocket. Houston residents, for all the sensible suburban logic of their lives, are some of the biggest carbon emitters in the country. All those 90-degree days and all that humidity mean that Houston is a ravenous consumer of electricity. All that driving gobbles up plenty of gas. Urbanization will
continue in India and China, and that’s a good thing—there is no future in rural poverty. But it would be a lot better for the planet if their urbanized population lives in dense cities built around the elevator, rather than in sprawling areas built around the car.
CHAPTER 8
Is There Anything Greener Than Blacktop?
On a pleasant April day in 1844, two young men went out for a walk in the woods along the Concord River. Since there hadn’t been much rain lately, the water was low, and they could “fitly procure our food from the stream, Indian-like.” Using a match they had gotten from a shoemaker, they built a fire in a pine stump near Fair Haven Pond. The two intrepid explorers were hungry and looking to cook some chowder.
The same dearth of rain that made for easy fishing made the grass around their cooking area dry and flammable. Wind spread their fire to the grass and “as every thing around them was as combustible almost as a fireship, the flames spread with rapidity, and hours elapsed before it could be subdued.” One of the men rushed to town to raise the alarm, but the fire could not be stopped. Over three hundred acres of prime woodland were razed by a careless fire lit by these two young pleasure seekers.
Triumph of the City Page 24