Texas' policies attract people to move there but that doesn't mean the people who move there like Texas' policies
A puzzling post from Matt Yglesias.
Writing that Texas’ job growth is mainly due to population growth (it seems the picture is slightly more complex ), he writes:
A few people came up to me after the Cato event on Thursday night and said something like, you may be right but doesn’t the population boom show that people are voting with their feet for Texas-style public policy? … You can’t talk about revealed preferences without looking at prices. Notwithstanding the real estate crash, someone who bought a building in Williamsburg or Central Square or Logan Circle ten or fifteen years ago has done very well for himself. This would not be a million dollar house in Houston. In Brooklyn and Cambridge and DC we have “gentrification.” In Dallas they have population growth. There’s little net population increase in coastal states because THE RENT IS TOO DAMN HIGH (book forthcoming).
Right, but why is the rent too damn high in coastal states? As Ed Glaeser convincingly argues, and as I’m sure Matt knows, the rent is too damn high in coastal states because of policies enacted by these states that make construction hard, and thus reduce the housing supply, and thus drive up prices. Conversely, the rent is not too damn high in Texas because construction is relatively unregulated and so supply and demand match up (in both directions: Texas had a soft landing from the housing bubble).
Imagine, to take another Yglesias hobbyhorse, and I hope the subject of a forthcoming book from him, that all states except Massachusetts enacted very strict occupational licensing regimes for clowns. Plenty of clowns would presumably move to Massachusetts.
One person might say: “See? Massachusetts’ policies have enticed plenty of clowns to move there, which is good for consumer choice and the broader economy (and clowns).”
A second person might say: “Clowns didn’t move there because of policies, they moved there because it’s easier/cheaper to be a clown in Massachusetts.”
And the first person would say: “Well, exactly.”
Back before Deng’s reforms when plenty of communist Chinese tried to come to Hong Kong to make a better life, I’m pretty sure most of them weren’t readers of Hayek who had made an intellectual determination that central planning and collective ownership of the means of production was inferior to free markets and the rule of law. But it would still be fair to say that they were voting with their feet against communist policies.
I’ve lived in Houston and I’ve lived in Santa Monica. Santa Monica is better. It’s not that Santa Monica has better policies in some universal sense, it’s that Santa Monica is less hot, flat, and humid than Houston, so Santa Monica can afford to have policies that make housing less affordable than otherwise.
— Steve Sailer · Aug 21, 09:46 AM · #
Construction isn’t any less regulated in Texas, and the homes being constructed in Texas aren’t any more density-creating than the ones on the Eastern Seaboard, for the most part. (Density is one of MY’s big deals.) They’re all still single-family dwellings, and they must conform to more or less the same regulations about safety, materials of construction, wiring, and so on. Indeed Texas suburbs probably have stricter requirements about home construction than most of the east coast in regards to things like how far back on the lot you have to be, how much parking is required adjacent to a new apartment building, appropriate exterior colors and so on.
The difference is the space. Texas has it and the east coast doesn’t, so Texas’s stringent building requirements don’t strangle the housing market the same way they do in the east coast. The east coast should enact less stringent requirements on building, which would lower rents, but that’s not a sweeping case against regulation. People don’t want their homes to burn down in Texas due to faulty wiring any more than they do on the east coast; they want a home that doesn’t break the bank, and those are currently found in Texas in spite of Texas’s more-or-less-equally stringent rules about home construction, not because of them.
— Ch3t · Aug 21, 03:52 PM · #
Glaeser’s take on Texas housing is far from convincing. In the 1980’s, after a period of over-building, the state’s market crashed in the wake of an oil boom gone bust. At that time, one could argue that lax construction regulations only made it easier for the state’s supply to get ahead of its demand.
During the recent nationwide crash, most of the cities where house prices were hardest hit were not cities burdened by over-regulation. Most, in fact, presented no barriers to the development of an abundance of the very same mass produced housing tracts Glaeser praises in the Houston Metro area.
The real story, it seems, has not to do with regulation obstacles, but with employment circumstances. Oil was down in the late 80’s, so Texas suffered. With people out-of-work and/or earning less, the housing market went bust along with oil. Now, because the oil market has remained largely robust among a generally faltering economy, Texas is insulated.
To a limited extent, Texas of the late 80’s was a kind of miniature version of the country at large right now. Post-bust, it took 10-15 years for the Texas market to absorb its over-supply of housing. (Arguably, the sting of this period made lenders in the state more cautious as housing speculation became rampant elsewhere in the country during the early 2000’s.) The greater U.S. is likely also facing a decade-long correction.
— Hud · Aug 21, 04:55 PM · #
Texas’s.
— Freddie · Aug 21, 11:09 PM · #
Thanks for the information about Texas, but there are definite differences between Texas and California in environmental restrictions. In 2001, I played golf with a golf course architect on his Barona Creek course outside San Diego. It was open for business within 18 months of the decision to build by the Barona Indian Nation — because tribal lands have fewer environmental rules. He told me that every other course he’d designed in California was still tied up in lawsuits and litigation after 8 to 12 years.
— Steve Sailer · Aug 22, 04:41 AM · #
“the rent is not too damn high in Texas because construction is relatively unregulated”
As has already been pointed out, home construction in Texas is NOT “relatively unregulated”. I believe both MattY and Kevin Drum have pointed out that it specifically was tighter state regulations in Texas which helped prevent the housing market there from going berserk like other places.
PEG, where did you get this idea of Texas’ “relatively unregulated” housing market?
Mike
— MBunge · Aug 22, 12:54 PM · #
If the difference is space, then there would have been no housing bubble in Arizona or Nevada, which have nothing if not space. But the housing bubble was more extreme in Arizona and Nevada than in California and Florida (albeit California and Florida are much larger, so the aggregate size of the bubble was much larger in those two states).
Similarly, I’m skeptical that Arizona or Nevada have regulations substantially more or less stringent than Texas.
People also have to remember that Ireland and Spain also had gonzo housing bubbles, and subsequent crashes.
Oil isn’t a complete explanation either, though it is a partial one. Real estate prices didn’t rise as much in Texas as they did in California or Arizona; that’s a big part of the explanation for why they didn’t crash afterward. And Texas is far less oil-dependent than it was in the 1980s. Texas boomed in the 1990s, and the low-point for crude in recent history was at the end of that decade.
The dynamics of the bubble and crash are more complicated than a one-variable explanation. Detroit experienced a crash even though it didn’t experience the bubble. Minneapolis didn’t. (And they don’t have oil in Minnesota.)
This is something of a side-debate, though. I doubt Texas’s regulatory environment is dispositive in explaining why they didn’t have as much of a bubble, or as much of a post-bubble crash, as some other areas. But that doesn’t mean Texas isn’t doing something to attract so much in-migration. To know what they are doing “right” you’d need a good picture of the flow of net migration, where people are coming from and going to, and what they are coming or going to do.
— Noah Millman · Aug 22, 01:36 PM · #
Perhaps I exaggerated the buoying effect of oil on the present day economy in Texas. However, it still stands that the housing market there went through its own significant crash only twenty-odd years ago, which refutes Glaeser’s assertion that a lax building environment protects Texas against reckless speculation.
Furthermore, it’s fair to say that the experience of the 80’s crash had a chastening effect on development in Texas in the late 90’s/early 2000’s. The Texas market hadn’t even recovered entirely from its 80’s bubble as housing markets in states elsewhere— Florida, California, Arizona— began going through the roof. So, as Millman observes, Texas house prices didn’t spike the way they did in other states, but this had much less to do with a stable relationship between supply and demand fostered by a light regulatory environment, as Glaeser argues. It had much more to do with the hangover from the state’s earlier bubble.
Beyond this, the other obvious big factor is employment.
You can find exceptions, but when you look at a US map of areas with low employment and a US map of cities suffering the worst real estate declines, the overlap is significant. Nevada, California and Florida have a lot more people out of work than does Texas, so of course foreclosure rates are higher in those states than Texas.
Construction regulations have had very, very little to do with the Texas soft landing.
— Hud · Aug 22, 02:44 PM · #
Noah: I’m not saying that the fact that it’s relatively easier to build in Texas is the only reason why people are moving there. But it seems to be one reason. And I think Matt Yglesias agrees.
— PEG · Aug 23, 09:21 AM · #
PEG: I don’t disagree that Texas is growing faster than Oregon because Portland has turned itself into kind of a gated community while Texas is much more open. I just don’t think that’s the essential comparison to make when talking about the dynamics of the current recession and Texas’s continued job and population growth.
Arizona and Texas are both flat states with plenty of cheap land that attracted lots of in-migrants from other states as well as immigrants from abroad (particularly Mexico). In the 2000s, Arizona was growing faster than Texas. Now Arizona’s population may actually be dropping. The birth rate is plummeting, immigration is way down, and in-migration from other states is way down as well.
All else being equal, I would agree that cheaper housing = more in-migration. And one factor in the cost of housing is regulation. But the states that experienced a housing bubble now have much cheaper housing than they did pre-bubble. If the primary driver of population movements in the short-term is the cost of housing, then Arizona would be growing faster now than at the height of the bubble.
Instead, the opposite is true. That suggests that, looking at the last few years, the arrow of causality is going the other direction: the crash of the housing bubble led to severe local recessions in places like Phoenix and Las Vegas and California’s Inland Empire, which in turn led to out-migration from those areas which had previously been attracting large in-migratory flows. And because there are still no jobs in those areas, the severe decline in housing values has not attracted new in-migrants.
Texas, by contrast, experienced much less of a housing bubble than these other areas, and also experienced much less of a slump. And their population growth rate has continued to rise. That suggests that we need to look at other factors besides housing regulation to explain why Texas has performed so differently than Arizona or Nevada.
(Another point of comparison for Texas would probably be Colorado, which has also experienced continued population growth.)
I’m kind of skeptical of Yglesias’s economic prescriptions vis-a-vis density, as opposed to his environmental prescriptions, which I think are basically correct. The fact that San Francisco makes it hard to build does indeed make San Francisco more expensive, and limits San Francisco’s population growth – and therefore its economic growth. But all that did is encourage the development of San Jose and the rest of Silicon Valley. It’s possible there are some big economic losses to California from the fact that Silicon Valley is where the boom happened rather than, say, Oakland, but they aren’t obvious to me.
Similarly, Yglesias thinks that making Detroit an open city – free green cards if you agree to stay in the city – is the key to the city’s recovery. And it’s true that the key to recovery is population growth, because right now the tax base is too small to maintain a city the physical size of Detroit. But you could solve that problem with a stroke of a pen by incorporating the surrounding suburbs into the city; Detroit’s suburbs have continued to grow nicely even as Detroit proper has collapsed (though downtown has experienced a revival in recent years). And Detroit doesn’t have expensive housing. People aren’t moving to Detroit not because the housing is too expensive but because the economically vital parts of the regional economy have successfully severed themselves from the city, leaving no economic reason to live in the city. There are too few for which it is necessary to live in Detroit, and the quality of life is better in the suburbs. Changing that dynamic isn’t easy – but the change you want is job growth leading to in-migration leading to more job growth in a virtuous circle. If you start with population growth, you’re talking about a population willing to move in the absence of job opportunities. What would that population look like, skill-wise? What are the prospects for economic growth built on that foundation?
— Noah Millman · Aug 23, 01:14 PM · #
Dear Noah:
Building in Arizona and Nevada is much more limited due to water issues and federal or Indian land ownership than is the eastern half of Texas.
— Steve Sailer · Aug 24, 12:36 AM · #
Texas’s?
— nfl jerseys · Aug 25, 02:04 AM · #
There are any number of reasons why the rent is too damn high in Gomorrah-on-the-coasts but not Texas. Some have been mentioned, but I’d like to add another pair:
1. Texas regulated mortgages, so the improvident could not compete with the provident for housing. This keeps the price of housing down. (This is a point Adam Smith raised in defense of usury laws.)
2. All things being equal (which of course they’re not), more people prefer living in Gomorrah to Texas for any number of reasons: weather, Jesus, kulcha, salaries, landsmen/homies, safety net, what have you.
— Ebenezer Scrooge · Aug 31, 10:11 PM · #