New Geography

Tag: Dallas

  • Housing Price Bubble: Learning from California

    In a letter to The Wall Street Journal (February 6) defending California’s greenhouse gas (GHG) emissions policies, Governor Arnold Shwarzenegger’s Senior Economic Advisor David Crane noted that California’s high unemployment is the result of “a bust of the housing bubble fueled by easy money.” He is, at best, half right.

    The “bust of the housing bubble” occurred not only because of “easy money,” but also because of the very policies California has implemented for decades and is extending in its battle against GHG emissions.

    The nation has never had a housing bubble like occurred in California. The Median Multiple (median house price divided by median household income) in California’s coastal metropolitan areas had doubled and nearly tripled over a decade. Housing costs relative to incomes reached levels twice as high as those experienced in the early 1990s housing bubble, which was bad enough.

    This is all the more remarkable because even before the bubble the Median Multiple in the Los Angeles, San Francisco, San Diego and San Jose metropolitan areas was already elevated at 1.5 times the historic norm.

    “Easy money,” by itself, does not explain what caused the unprecedented housing bubble in California. If “easy money” were the sole cause, then similar house price escalation relative to incomes would have occurred throughout the country.

    Take, for example, Atlanta, Dallas-Fort Worth and Houston. These are the three fastest growing metropolitan areas in the developed world with more than 5,000,000 population. Since 2000, these metropolitan areas have grown from three to 15 times as fast as Los Angeles, San Francisco, San Diego and San Jose. While 1,800,000 people have moved out of the four coastal California metropolitan areas to other parts of the country, 700,000 have moved to Atlanta, Dallas-Fort Worth and Houston from other parts of the country. This is where the demand would have been expected to produce the bubble. But it did not. House prices remained at or near historic norms and average house prices rose one-tenth that of the California coastal metropolitan areas.

    These three metropolitan areas were not alone. Throughout much of the nation, in metropolitan areas growing both faster and slower in population than coastal California, house prices simply did not explode relative to household incomes.

    In touting “smart land use” as a strategy for greenhouse gas emissions, Crane misses the other half of the equation. Indeed, it is so-called “smart land use” (“smart growth”) that intensified the housing bubble in California. “Smart land use” involves planners telling the market where development will and will not occur. In the process it ignores the price signals of the market. Owners of land on which development is permitted naturally and rationally raise their asking prices, while owners of land not so favored can expect little more than agricultural value when they sell. The result is that the land element of housing prices exploded, fueling the unprecedented bubble. Restrictions on supply naturally lead to higher prices, whether in gasoline, housing or anything else.

    California has placed restrictions on development with a vengeance. For nearly four decades, California has woven a tangled web of land use restrictions that have made the state unaffordable. When the demand rose in response to the “easy money” the land use planning systems were unable to respond and a rapid escalation in housing prices followed. The same thing occurred in other areas with excessive land use regulation, such as Las Vegas, Phoenix, Seattle, Portland, New York, Washington and Miami, though the house price escalation was not so extreme as in coastal California.

    On the other hand, where land use still allowed a free interplay of buyers and seller (consistent with rational environmental requirements), the housing bubble was largely avoided. Average house prices in Atlanta, Dallas-Fort Worth and Houston rose only one-tenth that of Los Angeles, San Francisco, San Diego and San Jose.

    When the bubble burst, the far higher house prices naturally tumbled more than in other areas. The price was paid well beyond California and the other “smart land use” markets around the nation. From Washington to Wall Street to Vladimir Putin and Chinese Premier Wen at Davos, everyone knows that the international finance crisis was precipitated by the US mortgage meltdown.

    It all might not have occurred if there had been no “smart land use” markets with their exorbitant and concentrated losses. Overall, the “smart land use” markets represent little more than 30 percent of the nation’s owned housing stock, yet produce more than 85 percent of the housing bubble values at their peak. California style “smart land use” intensified the overall mortgage losses by more than five times. If the losses had been more modest, there might not have been anything like the current mortgage meltdown. With more modest losses, the world financial system might have been able to handle the damage without catastrophe, just as it did with the “dot-com” bubble earlier in the decade. The many households that have lost much of their life savings or retirement income would not be facing the future with fear. And even personally frugal taxpayers of the world would not be the principal stockholders in failing banks.

    California needs to wake up and face the reality. The intensity of the housing bubble was of its own making. More “smart land use” is just what California does not need. This is the lesson the rest of the nation needs to learn rather than repeat.

    Sources:
    David Crane letter to the editor: http://online.wsj.com/article/SB123381050690451313.html
    Domestic migration data: http://www.demographia.com/db-metmic2004.pdf
    Analysis of the housing bubble: http://www.heritage.org/Research/Economy/wm1906.cfm
    House price losses by peak Median Multiple: http://www.demographia.com/db-usahs2008y.pdf
    Las Vegas Land Market Analysis: http://www.demographia.com/db-lvland.pdf
    Phoenix Land Market Analysis: http://www.demographia.com/db-phxland.pdf

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

  • George W. Bush: Welcome Back to Dallas, Sort Of

    Any moment now I expect to see the familiar face of our former President, George W. Bush, in the parking lot of our local grocery store. Maybe I’ll run into Laura Bush on the treadmill at the Cooper Aerobics Center where both worked out on trips to Dallas. Once they are settled into 10141 Daria Place, I expect her mailbox to runneth over with invitations from countless charitable organizations, asking her as a former First Lady to be honorary chair and spearhead fundraising. And if only I attended Highland Park United Methodist Church, I may even have the benefit of praying with both the former President and his wife in that venerable Dallas institution: Bible Study.

    But the Bush family’s return to Dallas may not be as spectacular as they are hoping. Not that local journalists would be so rude as to throw a shoe, but when your 27 year-old hairdresser tells you she would refuse to style the former First Lady’s locks, you know something ain’t right.

    When George and Laura Bush left Dallas in 1994, we were sad to see them move. They sold a 3600 square-foot Austin stone home with a gravel driveway in Preston Hollow – a grassy, treed Dallas neighborhood known for its rich share of high net worth individuals. The Bushes lived in a lovely but modest part of PH – they owned a half-acre lot, a far cry from the one to 12 acre mansions west of Preston Road

    Texas pretty much loved his leadership, though it has been said that the governor of Texas really doesn’t do much of anything. “In 35 years of hanging around the Capitol…I have never seen anyone that good at the game of politics,” wrote Texas Monthly’s Paul Burka in 2004. “It was impossible to be around the guy and not like him. He filled a room. He was always himself. He said what he thought. He had the ability to let down his guard without losing the dignity of ‘I am your governor’. Not the governor – your governor.”

    In the Capitol, Bush was a uniter, not a divider and, as Burka writes, he fought the extremists in both parties. “He had the courage to tackle the most important issues: public education and the tax structure. He had a great staff. He made appointments based on ability, not litmus tests. He had the decency to stay above petty politics.” Their twin girls, who had attended the same exclusive private girl’s school in Dallas as my own daughter, opted for Austin public schools. That choice clearly planted the new governor as a “man of the people”.

    Down here, we thought Washington was a mess led by a shameful president. Bush would go to Washington and ditch most of the BS.

    In 2000, he was the man of the hour. A devout Christian, a conservative; nod nod, wink wink, we never believed Laura really was all that conservative. We didn’t think the President was, either. After all, this was the man who lost his 1978 run for Congress to a conservative Christian Democrat named Kent Hance, who stung the Bush campaign by spreading word that young Bush was plying college voters with alcohol, the drink of the devil.

    Then our attention turned to the fact that religious fanatics from another part of the world murdered 2,000 Americans at the Pentagon, World Trade Center, and in a wooded Pennsylvania field on September 11, 2001. Stem cell research, abortion rights, the $1.6 trillion tax cut were no longer Job One – we feared for our safety and couldn’t even open the mail without concern the envelope was laced with Anthrax.

    Post 9/11, Dallas was solidly supportive of the Bushes. Then came the Iraq invasion and all the other disastrous bookmarks of his dual terms that made even the most loyal hometown supporters wonder – what is up with him? What happened to our governor? Bush had promised us a crisp, tight-ship of state. Instead, we got two wars and evidence of more disorganization, culminating with the worst financial meltdown since the Great Depression.

    America was fed up; even Dallas was losing patience. Prior to the November election, I gasped one day while driving through the backstreets of Preston Hollow. The Bushes’ own neighborhood had more Obama yard signs than McCain, even in the yards of the homes flanking his old one. President Obama picked off the three largest urban counties in Texas – Dallas, Harris (Houston, home of papa Bush) and Bexar (San Antonio, heavily Hispanic). McCain did win Texas, but Obama racked up 43.8 percent of the total vote.

    Texas has changed in the 15 years since the Bushes left Dallas. We are more diverse, and a Hispanic majority is on the horizon. Not sure how they view the former president, but they adore his nephew, handsome and half-Latino George P. Bush – someone to watch closely.

    Meanwhile Dallas’s population has expanded exponentially, and we are poised to become one of the largest urban centers in the country. Our population is younger, a combination of maturing offspring – children of the Baby Boomers like Jenna and Barbara – and an influx of people who moved here from other metro areas, many post 9/11.

    We are finally developing an urban core, though the recession and credit crunch has slowed progress and put several developments on hold. We have a Ritz Carlton, a W Hotel and Residences. Even Philippe Starck has his imprint etched on Dallas glass. The Perots and Tom Hicks built a magnificent downtown sports arena that promises to be a Times Square. The Mandarin Oriental got us all stirred up then put on the brakes. More recently, one charming high rise project halted construction, leaving a skeleton shell and returning the few buyers’ deposits. Other ambitious projects are leasing cheaply just to pull in warm bodies.

    We have more foreigners living in Dallas; Mexican food is no longer the only exotic fare in town. Travel north of LBJ/Interstate 635, the major highway that divides blue-ribbon real estate from the ‘burbs, and you find entire communities of Sikhs, Buddhists, Muslims – including a sprawling mosque.

    George Bush may have super-glued himself to the religious right, but while he was gone, Dallas grew more liberal and tolerant. Gay men hold hands, kiss in public, and lead corporations. A gay Dallas couple has just filed the state’s first same-sex divorce case. You see more crunchy people and Birkenstocks: Whole Foods has stores across the city. We eat more granola and yogurt and shun the preservatives.

    Even our garbage collection has changed: the president will have to divide paper from plastic into big blue bins to be rolled out bi-weekly.

    There are vestiges of the past: Harvey Goff sold his family hamburger shop, famous locally for insulting their own customers even as they munch on a thick, greasy burger. Jimmy Francis – a Bush supporter – bought the stores and shut down the Lover’s Lane location to make room for a Geek Squad. But there is still a store near SMU.

    Most significant, however, is how the Housing boom changed the face of North Dallas, including Preston Hollow. Dallas may remember how the economy Bush inherited was not in the best of shape, either, and was in fact sinking into recession. The Bush housing policy aimed to make home ownership a dream come true for every American via low interest rates. The cheap money made Dallas a crane-city. The mid-century ranches were scrapped to make way for everyone’s dream home – a 7000 square-foot stone castle-ette with turrets, porte cocheres, media rooms. While this began at the tail of the 90s dot.com boom, Bush housing policies – those low interest rates – magnified the momentum. Now even homes built in 1994 are looking worn.

    So you can’t say that George Bush didn’t change Dallas. But as the Bushes settle in, they also might notice how much the place has changed while they were gone.

    Candace Evans is the Editor of DallasDirt, a Dallas-based real estate blog for D Magazine Media Partners.