The Texas housing miracle by Leith van Onselen

Last week, Rortybomb published an interesting article entitled Investigating the Link between Debt, Deleveraging and the “Texas Miracle”. In the article appeared the below chart showing per capita debt balances in key US states using data extracted from The Federal Reserve Bank of New York quarterly data release (excel file available here):

The chart shows large variances in per capita debt levels between states. Further, while some states experienced a huge build-up in debt levels in the lead-up to 2008 followed by large declines in debt levels (deleveraging) afterwards, others experienced only minor changes over the same period.

The article then contains the following chart showing a strong correlation between the percentage of deleveraging versus the unemployment rate; that is, the percentage of decline in debt from Q2 2008 to Q2 2011 versus the June 2011 unemployment rate for the states in question above:


The article then concludes with the following statements about Texas’ relative out-performance:

…Texas had very little in terms of a debt build-up and as such hasn’t experienced a significant decline in leverage since the recession.  The states we see with the strongest buildups and declines are states with the biggest housing bubbles.  These are the states with the highest unemployment as well…

Texas never had much of a housing bubble to begin with… the rather strong regulations on the mortgage market [in Texas] and growth in the housing stock are more likely the factors in preventing the build-up of housing debt that in turn isn’t holding back the economy.  There are strong regulations on the housing market, especially in terms of housing equity loans that in turn make it harder to bid up values.

Although the article contains some great data, I believe that it misses the key reason behind Texas’ out-performance – namely its deregulated and highly responsive urban planning system.

While it is true that Texas’ credit rules are slightly stricter than most other states – e.g. home equity withdrawal is restricted to 80% of the homes value and mandatory cool-off periods are in place – I would hardly call them conservative. After all, you can still buy a home in Texas with only a 3.5% deposit, albeit with annual mortgage insurance payments (see here and here for details).

As I have shown many times before, housing markets with responsive land/housing supply are both more affordable and less prone to bubbles/busts than markets where land supply is constrained by physical and/or regulatory barriers. And Texas is arguably the best example of the benefits achieved from highly responsive land/housing supply, given that its home prices have remained both affordable and stable in the face of very high population growth (Dallas and Houston each added a whopping 1.2 million people each over the past decade!).

But to only single-out Texas is unfair, since roughly half of the housing markets in the US (by population) also operate urban planning systems more or less free of prescriptive land-use regulations (e.g. restrictive zoning, urban growth boundaries, up-front development charges, etc) and have achieved similar outcomes of relatively stable and affordable housing.

To illustrate this point, consider the below charts showing both Median Multiples (median house prices divided by median household income) and real house prices in cities/states deemed by Demographia and/or the Brookings Institution as having prescriptive land-use regulations versus those with more responsive land-use regulations.

First, the cities/states with prescriptive land-use regulations:

Second, the cities/states with more responsive land-use regulations:

As you can see, the cities/states with less prescriptive land-use regulations (planning systems) have achieved both more affordable housing and lower levels of house price volatility than those with more onerous requirements.

Some of the key reasons behind this outcome were explained in last week’s article:

…restricted land/housing supply is a double-edged sword. With supply unable to respond quickly to changes in demand, the housing market becomes overly sensitive to demand shocks, resulting in greater price volatility and boom/bust cycles as demand rises/falls.

During an upswing, the extra demand will automatically feed into higher home prices rather than new construction.  In turn, the price rises and perceived scarcity will encourage speculative demand and ‘panic buying’ from first-time buyers, which helps to drive prices up even further. The opposite holds during a downturn, where unresponsive supply will help to accentuate price falls as new housing planned years ago continues to hit the market.

And the implications of this result is shown in the first chart of this article: Texas, Pennsylvania and Ohio – all states with more responsive land-use regulations – experienced a smaller build-up and subsequent decline of debt than the states where land-use regulations were strict – namely, Nevada, California and Arizona.

Moreover, according to the same Federal Reserve Bank of New York data, the supply responsive states – Texas, Pennsylvania and Ohio – all have far lower levels of per capita mortgage debt and home equity lines of credit (HELOC) debt than the supply restricted states (see below chart).

This analysis is supported by a recent article by Demographia’s Wendell Cox, which showed overwhelmingly that US house price escalation was far greater in the more restrictively regulated housing markets at the peak of the US housing bubble:

As was the subsequent losses in the years following the global financial crisis:

The key point to take away from this analysis is that the supply-side of the housing market is critical.

While there are strong arguments for cracking down on the destructive speculation and easy credit that has fuelled the world’s housing bubbles, it is paramount that authorities work to free-up the supply-side barriers that have enabled the credit-fuelled demand to feed into skyrocketing house prices and volatile boom/bust conditions. Only then can stable and affordable housing markets be achieved, and the painful deleveraging that follows the bursting of all housing bubbles be avoided.

Later in the week I will examine the alternative claim that Texas’ stable and affordable housing has been achieved because of its relatively high rate of property taxation. Then, in a seperate post, I will provide an overview of Houston’s urban planning regime and infrastructure financing system to determine what lessons can be learned by Australia.

[email protected]



  1. Nice work!

    It is very unfortunate that some of the strongest opponents of the measures you describe are the ‘ progressive’ inhabitants of the inner ‘historic’ suburbs in the capital cities.

    Not only are they anti development on the edges but they are also anti town houses, high rise units and even granny flats in their precious yea olde theme suburbs.

    Real progressives support an efficient and responsive housing market not a public housing band aide – beyond its very limited useful role.

    But then economic literacy has been rejected by most lefties since about 1996

    • Interesting facts: Texas budget deficit this year $27b, last year $25b. California deficit for this year $10b, last year $25b. California is 50% larger by population and 70% larger by GDP.

      • Who said the Texas miracle extends beyond housing? 🙂
        Maybe Texas Governor Rick Perry’s “The Response” will make the budget deficit disappear – Now.. THAT would be a miracle.
        Jesus wept.

      • It’s quite amazing that one of the biggest promoters of fiscal discipline is the governor who added the most debt to its own state.
        Beside all this, Texas has higher unemployment rate than NY, Pennsylvania or Massachusetts. Since 2000 Rick Perry increased number of public (government) employees by 20% (23% peak) while CA increased only 5% (10% peak).
        Some people call Texas “America’s Ireland”—”pro-business, anti-tax, low-spending,” and praised for being so, “right up until the moment before it blows up.”

      • Texas had its own big property bubble in 1980s so they were scared this time, so instead they invested everything in oil.

        What I like about Texas is right to build a home almost anywhere you want.

      • UE, JC is not criticising Texan housing market per se.
        We just have issues with PFH007 extrapolating the apparent goodness of the Texas zoning rules and saying everything to the right of a Teatarded Texan is good and everything to the left is bad.

  2. Leith,

    Urban planning does contribute to the Texas miracle, but I wonder how much of the miracle could be attributed to the rather strong credit regulations? Ironic to see words regulations and Texas in the same sentence.

    • The major example of a market with VERY strict credit, AND serious property price volatility, is South Korea. The cause is land supply regulation and unresponsive supply.

      I have been studying this for years. The people who focus on “supply” are right. Nothing else co-relates. There are strong “dis-proof” cases all over the world, for every feature that is alleged to be “responsible” for house price bubbles; EXCEPT elastic land supply.

      In fact, there is no other “rule” as CERTAIN as this one: property prices rising ahead of inflation and incomes for a sustained period, is PROOF of inelastic “supply”. No counter example has ever stood up under closer analysis.

      A common mis-perception, is to say that “supply” over several years, was “high”, and this did not bring prices down. This is true – the vital point, is a SPEED of supply response. If it takes 1 year to ramp up “supply”, that is far too long. The “plentiful” supply of land that planners point to in Ireland, Nevada, Spain, or Australia; will already have become the subject of a speculative game, just as the entire housing market.

      The crucial point here, is that RAW LAND ABSOLUTELY MUST BE KEPT IMMUNE FROM SPECULATIVE MANIA. The existing “stock” of all property is IMMENSE – billions and billions of dollars. “Raw land” for housing supply is a miniscule fraction of the existing stock of property, yet its role in price stability is VITAL.

      If you can’t keep the price of raw land low and stable, you are DOOMED to a price bubble in “all existing property”. And keeping the price of raw land low and stable is so simple that there is no VALID excuse for not doing it. Every excuse (“we can’t afford the infrastructure” / “people shouldn’t live so far from the CBD” / “developers will OVER-SUPPLY” ! /”we need to preserve farmland” / “the locals don’t want their view spoiled” / “a rare snail species has its habitat there”) is risible nonsense when weighed against the alternative of a property price bubble and ongoing cyclical volatility.

      • PB

        I’m not disputing this statement

        “The major example of a market with VERY strict credit, AND serious property price volatility, is South Korea. The cause is land supply regulation and unresponsive supply. ”

        But can you please refer me to some info on Sth Korea because it my world that is impossible??? Maybe my world needs to change

      • Lawrence M. Hannah; Kyung-Hwan Kim; and Edwin S. Mills; (1993) “Land Use Controls and Housing Prices in Korea”; Urban Studies Vol 30 (1).

        Korea, at least at that time, had extremely weakly developed systems of financing house purchases, and most people SAVED MOST of the purchase price of a house there. In fact, the higher Korean house prices went, the GREATER the amount of private savings accumulated nationally, as desperate young people saved ever more money without actually getting to spend it on a first home.

        For RECENT Korean experience, see:

        The government tweaks mortgage loan-to-value requirement ratios from 50% to 60% and back, according to boom/bust conditions, and they STILL have volatile property price trends…….

        THIS paper is the best I have seen on the Asian Crisis and property markets; it is “book length”. There is a chapter or 2 on Korea:

      • Ok when I read the articles on Korea covering the last 10 years or so, I’d say as per CM’s comment is that the credit practices in Sth Korea seem to have wholes you could drive a truck through and suffer from continuous government interference.

        Whilst LVR’s restrict demand if debt servicing is not part of that equation and a borrower has the ability to manipulate deposits through the chonsei system, this is not a tight credit market with “strict credit” provisions.

        Leith, in the UK in the late 70s and 80s a product was available called an endowment mortgage. Under this mortgage a borrower made interest and principal payments on the mortgage but the principal was not used to pay down the mortgage but invested in other assets which were to repay the mortgage at the end of the term. Of course most blew up dramatically because of low asset returns. However, my point was that these mortgages meant that borrowers could borrow more for less repayments. A contributor to the 80s price spike, probably.

        Whilst history may throw up examples of house price spikes without easy credit, there does always seem to be something in the detail which provides an expansion of credit relative to what was available at the time. Which may not be an expansion relative to today’s market

      • Fair enough. If I had my way, we’d restrict credit too (a no-brainer). But do you agree that the supply-side is vitally important? How else did half of the states in the US – each of which had similar access to credit as the bubble states – avoid large housing bubbles?

      • DT. I Just looked into the UK endowment mortgages, which were first introduced in the late-1970s (info here). Interestingly, the UK experienced a very large housing bubble/bust in the early-1970s (see charts here). That is, prior to financial deregulation and endowment mortgages. This supports my contention that housing bubbles can occur without easy credit when supply is restricted.

      • Leith

        The supply side is vitally important in pushing house prices up to the amount the credit expansion allows.

        What I find intriguing in this country is how that supply availability has been selectively released to maximise value even when there is no real shortage either of land or houses built

      • “No real shortage”
        Try counting all the people forced to leave by the high prices. Include them and the situation is a little less intriguing and a little more sad.

      • I do admit Leith that I have no answer to the early 70’s house price spike in the UK. I would not agree however that its proof. Its a possible situation where supply side factors drove up house prices to fit within available credit parameters at the time which need not be the expansive parameters of today.

      • I get – and agree with – your point. However, it seems to me that speculation in raw land is what allows elasticity, at least, up to a point. Please explain.

  3. Robert Sherlock

    Texas does have regulations lots of them, I hear complaints all the time.

    One example, I was at the local city hall, and the person in front of me was getting upset that he had to get a permit to build a garage, he thought that was strange, it was not a house! He then complained about the half an hour it would delay the start of building (as the contractors arrived already) to drive down and fill in all the paperwork and get approved, then they had a charged him a $15 fee!

    He stormed out of the city hall complaining about all the Red tape!!!!

    Note texas has to show a balanced budget, as required by the Texas Constitution, it decided to cut and save rather than tax and borrow.

  4. PFH007, first comment on here, raises an important point.

    “Planners” intentions is for “more people to live closer to the CBD”. Therefore, they use a crude “restriction” tool of regulation to PREVENT development further away, and “assume” that densities will rise “closer to the CBD”, and a trade off of living space against the price of land, will keep “housing” affordable.

    The problem with this, is that they are thinking of a past era when inner city living was both high density and affordable. However, this was because the population “drift” was away from the inner city and towards and beyond the fringe, where there was and still is, an infinite supply of low cost land. Attempt to reverse this direction of population drift, and what happens? There is certainly not an infinite supply of low cost land at the centre of any city. In fact, this is where the land already is the most expensive, and the slightest sign of “rising demand” will push it up. As we are discovering.

    Add to this, the fact that NIMBY populations closer to CBD’s are probably the most empowered and successful at resisting the “redevelopment” that the planners ALLEGE will “keep housing affordable”, and you basically have one massive fraud playing straight into the hands of certain well placed property owners who will reap capital gains. Under scrutiny, “Smart Growth” really achieves nothing for anybody except these people.

    “Planners” should START with the “inner city” and its NIMBYists and its rent-seeking property owners. If they can’t democratically get themselves the regulatory tools needed to provide TRUE affordable high density living at the “approved” locations, then “growth boundaries” at the fringe are a total waste of time, and worse – they are an economic and socio-economic WMD.

    • By the way, I have spent a little time looking at population densities by district, over time, for the city of LA. LA is an interesting example of a city that did not have a “pre-automobile” high density CBD. NO SUCH CITY IN THE WORLD, has EVER developed a high density CBD.

      What interested me about the density statistics, was that prior to about 1980, densities at certain “nodes” WERE rising slowly. Then it stopped rising, roughly in correlation to the rises in urban land prices. I argue that if planners want an urban area to “densify”, it is more likely to happen “AT ALL” with urban land prices LOW, than high.

    • I don’t get this focus on ‘the’ CBD. So Oz wants to keep doing business in 5 CBDs for the next couple of centuries with people driving further and further as sprawl continues?

      What about planning, investing and stimulating the emergence of additional CBDs in other parts of the State? I would move away from the capital city tomorrow if I could find decent work somewhere else. I would prefer living in a smaller city.

      The CBD focus cannot be sustained forever. Satellite cities would solve the urban sprawl issue whilst providing more than enough land (supply) to keep housing prices down.

      • Ah, the good news, AnonNL, is that employment decentralisation already IS the new norm. It is a perfectly natural free market phenomenon. It is a horse that has already bolted, a cat already out of its bag, a genie already out of its bottle.

        “Planners” trying to reverse this trend, will only kill economies.

        “New City” blog in Australia; in their 14 Mar 2010 editorial, said the following – the writer of this is among a rare minority of people today who have such an advanced grasp of the issues:

        “……Writing in a publication of the 2008 9th World Congress of Metropolis, Sydney University’s John Black observed that “apart from some noticeable peaks, employment density is quite uniform across the [Sydney metropolitan] region”. According to the NSW Department of Transport, only 12 per cent of Sydney’s jobs are in the CBD and second tier centres like North Sydney, Chatswood, Parramatta, Hurstville and Penrith have less than 2 per cent each. David McCloskey, Bob Birrell and Rose Yip of Monash University (demographers, not urban planners) report the same about Melbourne. The CBD hosts around 20 per cent of jobs and the rest are scattered all over the metropolitan region.

        Platitudes like “we must locate people close to where they work”, or “we must locate jobs close to where people live”, have little basis in reality. They infringe another immovable law of economics, relating to economic rents or bid-rents. This mechanism determines how industries and firms are distributed. Put simply, a parcel of land will go to whichever use delivers the highest profits. Centrally located land (near major transport or infrastructure hubs) commands high prices, and goes to the most profitable uses. Peripheral land goes to less profitable or marginal activities.

        Over the last thirty years, economic deregulation, flexible transport, advanced communications and population growth have raised up a sector in the latter category, extracting value from cheap outer-metropolitan land and low rents. It includes industries like transport and distribution, building and construction, food, consumer products, personal services, wholesale and retail. They depend on favourable location costs and proximity to urban markets and labour pools. According to the Greater Western Sydney Economic Development Board, “prime industrial land with direct access to transport infrastructure is 75% cheaper [in GWS] than other areas of Sydney”.

        Ultimately, green planning will phase out cheap urban land, undermining this sector and destroying jobs in the process…..”
        The guy who wrote this should be a Cabinet Minister in charge of Australia’s urban and transport policy.

      • If this is the new norm than only within the metropolitan areas, which are clinging to the existing CBDs (according to the text above).

        What I’m talking about is developing new CBDs outside of existing metropolitan areas in what is now regional/rural Australia. This would then provide new hubs for employment and living with decent infrastructure linking hubs together.

        It’s a different mindset. Aussies see the CBD and sprawl/suburbs as inherently different things. Eurotrash me just sees one large city that people seem unable to break out of.

      • ANONL, you are probably aware that there are immigration policies to shift some of the population to regional areas – Specific “Regional area” visas that are only available to prospective immigrants who are willing to settle out of the cities in regional areas.
        But there is a loophole that is exploited by Fed pollies and their mining buddies – Perth has now been “declared” to be a “Regional city” !!

      • How exactly does government tell people where to live?

        I;m not sure if readers are aware but governments have been trying to get people to move to regional areas for decades. They relocate government departments, offer grants and subsidies for regional areas etc. In QLD there are also many ‘planned’ satellite cities – Springfield, Sippy Downs etc. But for these areas to grow people need to be willing to live there.

        It’s not like our cities are very big compared with cities around the world. Perhaps they sprawl a lot, but by no means do they have large populations.

      • QLD is actually not doing a bad job of expanding other cities. About every 4hrs up the coast there is some sort of regional centre with a reasonable population and facilities.

        The rest of the country on the other hand is a different story.

        The key is always jobs. People move where there are jobs, houses services etc will follow. One of the main reason people leave small country towns is that there is no work.

      • I am aware government would like people to move to rural Australia but I don’t see a strategy to provide the incentives to do so. (That is, decent infrastructure, business incentives, etc.)

        Ultimately it comes down to finding a job, decent facilities/services and a great lifestyle. Simply ‘forcing’ people to settle in rural parts or paying them higher wages won’t work in the long run. Strategy right now seems to focus on the initial move to rural areas, not on keeping people there in the long run…

      • ANONL, Again it is linked to demographics – existing city-bound voters won’t allow any regional infrastructure to develop. Other than the Bob Katter and the 3 amigos, how many MPs geniunely represent Regional/Country Australia?
        If Barry O’Farrell announced a major regional infrastructure investment beyond the token $7,000 offered to move out of Sydney, the city voters will revolt and throw him out. They want their SW railway line first and they want it now (well, 20 years ago actually).

      • Dead on Mav.

        Only polly I can think of is Brendan Grylls in WA.

        In order to get people out of the cities new jobs need to be developed in other areas, and they need to be wage earning positions.

        For much of the past rural economies have decended into a ‘ultra small’ business / self employeed hole. Where many ‘jobs’ are only open to those with the capital to ‘buy’ a position. Agriculture is the prime example of this.

        Without wager earning permement positions, most people are shut out of the rural economy and thus pack their bags and head to the city.

      • Jackson, I agree that FIFO is a case of not moving, but only affects a very small section of the permenant location workforce ie not construction.

        FIFO also cuts both ways. I FIFO from a small town in WA, I wouldn’t be able to live there and work without the fifo roster option. There are at least 11 others in the town that I know of doing the same.

        FIFO or DIDO is still an option to build regional population centers, Mackay (QLD) for instance, there is also a lot of fifo based in Townsville and Cairns.

      • I left Sydney at the start of the year for one of the evocities in regional NSW. With my wife and young daughter, I am a FP and we both have University educations. We are now heading back to Sydney due to a number of reasons both lifestyle and financial. The problem in the country is not lack of jobs. Rather lack of well paying jobs in the private sector which offer some sort of flexibility. Lack of basic services namely health. Due to political reasons it has been grossly neglected.
        The cost of living is more expensive when you take out the housing equation. Property has bubbled here just like the rest of Australia and is still unaffordable. Especially compared to wages.
        It may sound great to move to a large regional centre but the reality is much lower wages (40% +) higher energy costs (including fuel) less convenience and less opportunity. The rapidly rising cost of essentials has a larger impact on the lower income earners in regional centres. Electricity prices rose the most recently in regional NSW. about 18.1% increase in areas where the climates are colder and hotter than the city. These are impacting regional NSW much more than the city.

      • Evocities is just a bunch of BrochureWare – a marketing exercise to put some lipstick on some pigs.

      • The biggest problem to this is the voters.

        State governments will place jobs close to existing populations because thats where the votes are.

        At the extreme we see a hugely mobile (FIFO) in instances where industries cannot be placed close to the voters.

        The origional economic force creating cities (the most efficient, and thus cheap place for labour to live) is now falling apart as city wage demands make tradtional employment options unsustainable.

      • Your above example should be the reason to why we can build up a place like Geraldton in a short period of time.

        FIFO, well it doesn’t matter which airport you fly from. Put really cheap homes as part of a BHP/RIO salary packaging program, on the condition that all these properties are in Geraldton, and it goes from 30,000 to 55,000 residents very quickly.

        In very quick time will come the schools and consumer staples infrastructure, followed by consumer discretionary and retail, which then becomes a critical mass and provides some of its own aggregate demand.

        Alas, you have to put in a measure that says ‘no Mr Devloper, you won’t be able to make a motza selling barren land on the fringe of Geraldton, unwanted by all and sundry for 100 years until now where it can be sold for $40,000 less than Prth prices’.

        Whetheyou think the solution to that level of control is completely state run, or zero state interference could well bring on another debate.

  5. By the way, all credit to Leith for spotting these extremely interesting items and putting up such enlightening postings. I doubt there is another blog anywhere in the world doing such high quality analysis on housing bubble issues, so consistently and continuously.

  6. How is Texas a miracle?

    The unemployment rate in Texas is 8.4%. The unemployment rate in New York is 8.0%.

    Arizona had the biggest housing bust of them all and the unemployment rate is 9.4%..yes its higher but I wouldnt say it is significantly higher. 8.4 and 9.4 are both pretty bad.

    Sorry to say but your article proves virtually nothing

  7. My friend asked “How exactly does government tell people where to live?”

    Well if you zone 10,000 new office jobs in the CBD and zone 10,000 new house blocks at Kellyville, promise but build no railway in-between, then it does not take a rocket scientist to explain the jam of cars on Windsor road.
    How can government solve the traffic jam?
    I’ll leave that to the reader.

    • Are you saying there is plenty of zoned land now?

      Your premise is that there are no other options – no apartments being constructed or approved for construction in any better locations. Given the stock of already approved apartments and land in SEQ is about 88,000, I would expect far more in Sydney. I have trouble believing that zoning FORCES people into this location when so many alternative exist.

      Second, no all jobs are in the CBD, so those who need to get to the CBD each day will be willing to pay more to be closer. Those who don’t may wish to purchase larger homes further from town.

      • Sadly govt has choked the supply of units in Sydney resulting in expensive dogboxes for sale. Given the choice, a $600,000 house in Kellyville is good value. Yes they would like to pay more to live closer, but cannot afford more than one million dollars to do so.
        Govt has created a severe shortage that results in much suffering. Leith documents cause and effect and you search for obtuse data so you can deny it. Why?

      • “Sadly govt has choked the supply of units in Sydney”

        Since government doesn’t actually supply units, you will have to direct me to data on the number of development approvals the government is denying v approving to restrict supply.

        “…you search for obtuse data so you can deny it”

        I haven’t seen any data expect price to argue that supply restrictions are a factor – which is odd. The argument then basically looks like “The reason prices are high is because of supply restrictions. And the evidence for supply restriction are high prices”

        I have shown many times that
        1. planning restrictions control the LOCATION of development, not the QUANTITY;
        2. government approves far more dwellings than the market can absorb;
        3. land derives its value from its highest use, not its marginal use
        4. there is extensive competition between developers, and land banking does no improve returns
        5. the supply and demand for housing determines rents not prices. prices are derived from these rents, and supply and demand arguments fail to explain price trends if they have diverged from rents

        Please send me some a link to show that government is restricting the QUANTITY of housing through restricting the quantity of development approvals.

      • This is typical shortage-denier rubbish. You play a semantic game about location not quantity.
        The fact is that a dogbox 2hrs from work does not adequately substitute for a decent house a reasonable commute from work.
        It could be argued that visiboard could easily dump 20 million boxes in the desert. People can live in boxes therefore there is abundant housing for all. This is nonsense because location DOES matter.
        Another thing shortage-denier demand is a link to data proving such and such. Complex matters do not come with links to data of proof. We are discussing this issue here because there is no link to data of proof.
        Countless thousands of young have left Sydney because they cannot afford housing, handle the commute, etc. Do you know a website that can convert them into a link to data that would convince a shortage-denier there is a problem?

      • “Countless thousands of young have left Sydney because they cannot afford housing, handle the commute, etc. ”
        And why is that not a good thing exactly?

      • Leith,
        Because the very concept of ‘price elasticity’ of land supply is misconceived.

        Land is produced with land. It was always there, at any price. If people are willing to pay more for housing, then land that can be used for housing increased in price so that the margins for developing housing are pushed back down to what the market will accept.

        Second, you don’t think it is anything to do with a ‘balancing out’ of the previous construction boom?

        As someone who used to determine the price structure for selling subdivisions, I can tell you that plot sizes are ALWAYS the minimum allowed by zoning. And land prices are compared on a per sqm basis in any case.

        As far as the approvals data goes, it seems to support the argument that planning controls are not to blame for the trend. It seems planners could approve 5000 applications a month in NSW if they were received, but they only receie a fraction of that amount.

        Also, the occupancy rate is the best measure of the relative increase in population and housing stock, and shows that we overbuilt to a massive degree, and only in 2006 did our occupancy rates start to rise.

        Given that prices boomed while we overbuilt, and have not moved much in most of the country since the occupancy rate has turned, doesn’t really support the whole ‘supply restriction thesis’.

      • “Land is produced with land. It was always there, at any price”.

        Ah yes, the old ricardian supply is fixed argument. Pitty Ricardo’s conditions no longer hold as soon as the government restricts where building can take place. Ricardo’s analysis was also based on a single market (corn by memory), not where there is competing uses for land (agriculture, commercial and residential). In a normal land market, the land supply curve for urban land slopes upwards and the elasticity of supply will depend on constraints – both regulatory and physical. It is not vertical, as you claim. The amount of low cost agricultural land in Australia (and most other places) is many multiples larger than that of urban land, which in a normal land market (i.e. where substitution between urban/rural land is not restricted by regulation) keeps raw fringe urban land prices at close to its agricultural value – which is what happens in Texas, Georgia, etc.

        “Given that prices boomed while we overbuilt, and have not moved much in most of the country since the occupancy rate has turned, doesn’t really support the whole ‘supply restriction thesis’”.

        So housing demand is only based on occupancy rates now is it? What about rising incomes – should this not also increase the demand for housing? And how can you claim that we overbuilt? Moreover, the supply response has been incredibly slow and non-existent in places like Sydney.

        You have yet to explain why places like Texas, Georgia, etc have maintained stable land prices in the face of easy credit, high population growth, etc when Australia has failed so dismally to do the same. Or do your rules of land economics not also apply in these markets?

      • C’mon Leith. I have made my case a number of times to explain the relative stability of land price in Texas

        1. tighter lending standards since the 1980s boom, and
        2. a gradual increase in land taxes (and the lower the prevailing interest rate, the greater the impact of taxes on price).

        That can explain everything.

        The question is not why prices are lower in Houston, but why rents are not significantly lower compared to incomes, and why yeilds are so high. Remember, price is a function of rent, and if land supply / demand problems exist, they MUST be seen in rents.

      • 1. tighter lending standards since the 1980s boom

        What tighter lending standards Cam? Oh wait, they restrict equity withdrawal to 80% of the property’s value and have a longer cooling-off period. Yet you can purchase a home with only a 3.5% deposit and pay an interest rate of only 3.1% variable and 4.25% 30-year fixed (see here and here). If that’s conservative, I am the tooth fairy.

        2. a gradual increase in land taxes (and the lower the prevailing interest rate, the greater the impact of taxes on price).

        This is the ultimate straw man argument that I will demolish shortly. Funny how you also conveniently ignore the low property taxes in the other stable low-cost land markets of Georgia, South Carolina and North Carolina.

  8. Some alternative analysis is given here regarding the difference between Texas and Australia:
    It may be that the following factors, perhaps more important than planning policies, may be relevant:
    – much lower incomes
    – much lower income growth
    – relative poverty of the majority black and hispanic population
    – different demographic ages
    – past boom building.
    The lack of bubble prices is also questioned.

      • Hi UC – I wonder if property rights are an issue. I understand (and I could be wrong as I’m going off memory) that AU’s property rights are significantly more protected than Texas. I recall from several years ago an American colleague saying that Texas energy companies can drill in your backyard. They can’t do that in AU. There’s hundreds of thousands of wells in and around most of the various Texas metropolis many of which are literally in people’s backyards. Again, I’m not 100% on this, so I’ll happily stand corrected.

      • In most of the states oil and gas is ownership is by the surface land owner. (unless its been sold off privately) so people are more tolerant of living next to pumpjacks because they get paid for it.

        Prime example is Beverly Hills Highschool which has its own pumpjacks.

    • Thanks. The first three factors are irrelevant, since the charts show Median Multiples (median house prices divided by median household incomes), which take into account income differences. As for the building boom – that is precisely my point. Unlike Australia, Texas does not restrict supply so therefore has not experienced a serious bubble.

      Remember also that Texas (25 million) has a larger population than Australia (22.5 million) and occupies a much smaller land mass. It has also experienced far stronger population growth than Australia (Houston and Dallas alone added 1.2 million people each in the past decade!). These factors, other things equal, should have caused Texas’ house prices to increase by more than Australia’s.

      • The first three factors are not at all irrelevant. A low income cannot support as high a house price/income ratio as a higher income. If food and other necessities takes a larger portion of income then there is less as a percentage available for house purchase compared with higher incomes. Someone on $30k may well be stressed paying 30% on a mortgage. Someone on $1m paying 70% is unlikely to be stressed.
        It is not appropriate to use house price/income ratios for comparative analysis without considering the income level differences.

      • Hang on a second. The Median Multiples quoted use GROSS household incomes – i.e. before income tax. Texas has NO STATE INCOME TAXES which, on an adjusted basis, improves its Median Mutiple against most other states.

        Second, take a look at the chart on page 5 of this article. It shows that Texas has higher discretionary income than most other states.

        Third, Texas has experienced HIGHER per capita income growth than California (see here), yet has still maintained affordable housing (unlike California).

      • Excellent – Texans have a higher discretionary income BECAUSE they are not obliged to spend so much on housing, as in “growth controlled” areas.

  9. Hi, I agree with your analysis and the fact that ‘responsive’ land management deflate any chances of housing bubbles. However, I see housing market the result of three forces at work – economical, political and environmental. While increasing supply to release the affordability tension, the 21st centry economists and politicians are also required to consider the environmental sustainability of such approach. Ultimately, the supply is not unlimited while the demand, i.e., population growth, potentially is. Thanks for listening to my humble view.

  10. Great analysis and my take-away value is this:

    Australia is been crimped by state and local governments domination of the supply side of land.

    Have they been prompted by the gnomes of Comnab and Wanz?

    At any rate I’ve photocopied this article (I hope this is in order) and will be taking it into my local council and presenting it to the jackboot greenies who take years to ponder the most extreme (non)issues.

    I’ll simply flick it to them stating “you guys aren’t the solution…YOU are the PROBLEM!”

    Come to think of it…this is going to all the alderman as well. It’s about time they realised the gravity of the issues.

    Caveat: I am an extremely frustrated individual who has been dicked about for too long by Town Hall!

    • A fair call. Indeed if we all did that maybe we could get some traction on this. Leith always support this arguments with well research and verifiable facts.

      The counter arguments tend to be an emotional ‘off the cuff’ response. Somedays it really does feel like talking religion with these people.

      Quote of the day: “you guys aren’t the solution…YOU are the PROBLEM!”

    • Guys,

      There is a lot a squabble in this post about what pushed the price of property up. I’m not saying that is not important to find that out. Could be the red tape, planning restrictions, easy credit, supply, demand, temperature, casual Friday etc or a combination of all of the above. Taking in account that generally speaking high house pricing does not contribute to the ones wealth unless one sells and moves in a tent, I would really like to debate what was the reason to let the price go that high and who was behind the scheme.

  11. One of the big issues IMO is that in most parts of the US, they are highly effective at incentivising businesses to set up well out of the most densely populated areas. They do this via differentiated state taxes, local municipality incentives and so on. The result is that most people in the US dont live in a big city, and housing in the big cities (with a few exceptions) is more expensive 30kms from the CBD than 2 or 5kms.

    This is the path that Australia needs to tread, not simply increasing the population sizes of its cities and requiring people to truck into the CBD to work. Stupid and outmoded model for development, and is mostly the preserve of developing-world cities who have no other option.

    • +1 Dave.

      I think the reason behind why the states and municipalities do such things is that they are in charged of their own funding.

      In Australia lower levels of government receive most of their funding from the level above them. A successful LGA or state will have its funding reduced. This encourages governements to institute subsidies based on numbers of residents (voters) rather than development of their local economy.

      A symptom of this is the NIMBYism of LGAs. They want the voters to reside in their boundaries, but not the industry because they will benifit from increased politcal power and rates, but will not earn significant income from industy.

      • The cost of land, and the congestion that results from location of much employment in the “CBD”, drives “decentralization” even apart from taxation incentives.

        THIS academic is light years ahead on studying all this:

        Note especially the papers: “Discovering the Efficiency of Urban Sprawl”, and “Decentralisation and the Stability of Travel Time”.

        Gordon, Kumar and Richardson were probably the first to say the following in 1989, in “Congestion, Changing Metropolitan Structure, and City Size in the United States”:

        “……..The most convincing explanation of why congestion did not become more severe is the continued spatial decentralization of both firms and households, which permitted travel economies, especially for suburban residents in larger cities. The continued competitiveness of the large metropolitan areas is mainly attributable to this adjustment process……”

        Anas confirms this abundantly in 2010, in “Discovering the Efficiency of Urban Sprawl”:

        “……in the new equilibrium jobs and residences adjust by relocating closer to each other on average, trips getting shorter to make up for the higher congestion per mile. Aggregate car VMT increases because workers increase, but VMT per trip decreases. The higher congestion per mile also causes transit ridership to increase in some places, but the effect is offset by car trips shortening as jobs and residences spread to the suburbs apace. These adjustments enable cars to compete effectively with public transit in the face of increased average congestion per mile. The result: more urban sprawl does not increase the cost of travel as measured by VMT or travel time per car trip. Rather, sprawl serves as a subtle mechanism that enables the cost of travel to remain resilient and stable while the region adds population and its appetite for mobility rises with income……

        “……with jobs and population sprawling to the suburbs, the average road distance between home and job and home and shop can become shortened as congestion increases on the average mile, so that travel time per consumer remains stable. These results suggest that urban sprawl itself has not been the cause of significant travel cost increases. Meanwhile, theoretical models of urban areas with polycentric and dispersed employment show that more sprawl not less is often needed to offset the negative externality of un-priced congestion and improve efficiency. Planners, like urban economists devoted to the monocentric model, have long viewed sprawl as something that should be reduced. Such a bias leads to potentially drastic planning and policy remedies of which the restrictive urban growth boundary is the prime and most costly example. A higher level of sprawl and polycentric land use may indeed be optimal. To the extent that TOD and the New Urbanism are perceived as anti-sprawl tools, they may be wrongly promoted. But these tools of modern planning have an important role to play in serving niche markets. Planners may do better to view them as mechanisms that will promote efficient polycentric land uses.”

        Here is the “Conclusion” of Anas (2011): “Metropolitan Decentralization and the
        Stability of Travel Time”:

        “We have tested the hypothesis that travel time is relatively stable and sustainable, but not constant, in the face of urban growth and continuing urban sprawl. The relative stability of travel time that we discovered arises not from a psychological human need or from strict time budgeting assumptions but from rational economic behavior by utility maximizing consumers and profit maximizing businesses in the face of increasing suburban congestion caused by population growth.
        Our empirical explanation of the stable and sustainable travel time hypothesis relies on a structural microeconomic CGE model founded on the modern assumptions of job dispersal and polycentric urban form. Urban sprawl can be a catalyst for shorter not longer trips, because as congestion per mile increases with population growth it is the sprawl of jobs and population that keeps travel durations in check by businesses and consumers adjusting to the higher congestion.
        Cause and effect have been established, and there is indeed “no paradox” as correctly conjectured by Gordon, Richardson and Jun about twenty years ago……”

  12. Another point about the US regarding their taxes, there is a lot of diversity in the taxation system between states. One of my clients was telling me about OHio and the fact that if you own a farm and are not producing anything, you will be hit with a very high land tax. The idea is to discourage land banking, ie do something with it or pay tax. The other aspect is that a lot of the states have death duties some with a threshold as low as 100k. I suspect that it would ecourage property to turn over a bit quicker as well.

  13. The thread has got too “skinny” up where I was arguing with some guys about “easy credit”. I said South Korea still had housing bubbles in spite of difficult credit conditions.

    The other guys came back to me after reading my references, with an argument something like “oh, but too many people were circumventing the difficult credit requirements, therefore “easy credit”, not “supply issues” are still responsible for the housing bubbles and cyclical volatility in South Korea….”


    Are these people desperate to smokescreen the supply issue or WHAT?

    • I do not disagree with the supply effect and your arguments above and below.

      However, you stated that Sth Korea has strict credit policies when the detail does not stand up to that assessment.

      A country cannot have a housing bubble leading to high levels of unaffordability without expansive credit policies and availability.

      Historical Price increases also have not necessarily led to high levels of unaffordability.

      • “A country cannot have a housing bubble leading to high levels of unaffordability without expansive credit policies and availability.”

        This gets to an important point about regulation, or more importantly, effective regulation. I would posit, that in the US, real estate finance and transaction fraud are a given at all times. It’s a matter of determining what the fraud is at any given time that tells you what is really going on in any market. The problem is, fraudulent pricing never really gets rooted out of the system.

        For example, the tail-end of the boom in many US markets included many purchases at inflated prices where the buyer was getting paid to buy (by excess loan amounts), and a cohort of operators were getting their “consulting fees.” If you accept what I’m saying, then pricing for these folks wasn’t really inflated, because they never actually paid the nominal price. Other honest buyers did, but I’ve never seen this looked at with the same depth as provided by UE here. I can’t believe this is not a very significant aspect.

        To be even more clear, what would have happened if fraudulent pricing hadn’t been a significant component? It’s worth noting that this happened in both CBD condo developments and outer-ring higher end developments in more-or-less the same way.

      • “A country cannot have a housing bubble leading to high levels of unaffordability without expansive credit policies and availability.”

        Yeah, but it CAN have expansive credit policies WITHOUT a house price bubble.

        Who thinks we are going to eliminate monetary policy that “stimulates the economy”, as a standard policy approach in our economies? This is simply incompatible with urban development rationing – one or the other has to go.

        The “housing” economy WITH development rationing is simply not manageable, and renders the whole economy not manageable, with the monetary tool of credit expansion and contraction.

        Don Brash and Owen McShane at the NZ Reserve Bank, predicted all this in 1996. They should be celebrities now.

      • But was there fraudulent pricing in the low-land-cost markets?

        Atlanta, Georgia had a few problems of various kinds. This meant that unemployed solo mums were getting credit to buy $90,000 houses. Foo, eh? Shock, horror. Economy destroying stuff, eh?

        Compare with California, where the frauds involved yuppie couples getting credit to buy $1,500,000 houses. Just as irrational a stretch as the solo mum in Georgia’s $90,000. Which represents a really serious problem for the economy of the USA and the world?

        Check out the web site “Crack Shack or Mansion”. A “crack shack” in a “Smart Growth” city costs a million bucks plus, and mansions in non Smart Growth cities cost less than half that. The photo evidence is pretty damning.

      • If South Korea did not have “strict” credit policies, then what is your suggestion of “strict” policies that would WORK?

        Bear in mind that far LESS strict policies in Texas, are being pointed to by people on this thread, as “a significant reason” for their price stability, playing down the role of land supply issues. Having it both ways.

  14. Again, the thread was getting too skinny up there: Cameron Murray said THIS:

    1. planning restrictions control the LOCATION of development, not the QUANTITY;
    2. government approves far more dwellings than the market can absorb;
    3. land derives its value from its highest use, not its marginal use
    4. there is extensive competition between developers, and land banking does not improve returns…..”

    AH, I see a fatal problem with your understanding. Yes, indeed, government might restrict the location of development rather than the quantity. But this plays right into the hands of incumbent property owners at those locations. The only way to avoid massive “planning gain” is to ALLOW leap-frog development. Maybe this is 90% of the problem.

    I still stand by everything I said in my posting at 8.48am. Extract:

    “…..There is no other “rule” as CERTAIN as this one: property prices rising ahead of inflation and incomes for a sustained period, is PROOF of inelastic “supply”. No counter example has ever stood up under closer analysis.

    A common mis-perception, is to say that “supply” over several years, was “high”, and this did not bring prices down. This is true – the vital point, is a SPEED of supply response. If it takes 1 year to ramp up “supply”, that is far too long. The “plentiful” supply of land that planners point to in Ireland, Nevada, Spain, or Australia; will already have become the subject of a speculative game, just as the entire housing market.

    The crucial point here, is that RAW LAND ABSOLUTELY MUST BE KEPT IMMUNE FROM SPECULATIVE MANIA. The existing “stock” of all property is IMMENSE – billions and billions of dollars. “Raw land” for housing supply is a miniscule fraction of the existing stock of property, yet its role in price stability is VITAL.

    If you can’t keep the price of raw land low and stable, you are DOOMED to a price bubble in “all existing property”.

    • Phil, shouldn’t prices rise faster than inflation or rent if interest rates are falling? After all, property is an asset making a return in the form of rent.

      Also, you don’t address the fact that although development approvals take time, there is a very large stock of dwellings already approved, and many in the process of approval. It takes years to build a 747, a boat, or any number of products, but that doesn’t mean there is a shortage.

      Of course changing planning rules plays into the hands of the incumbent. I have a hard time reconciling the fact that you think is we remove zoning to allow any type of development in some areas it is to the benefit of the land holder, yet if we do it in all areas it is to the benefit of land buyers.

      • “Also, you don’t address the fact that although development approvals take time”. Yes it does – 180 days in Houston versus 5 years plus in Australia.

        I have a hard time reconciling the fact that you think is we remove zoning to allow any type of development in some areas it is to the benefit of the land holder, yet if we do it in all areas it is to the benefit of land buyers.

        How come? If regulatory restrictions are relaxed, allowing easy substitution between urban and rural land (in which there is many times more rural land available), then raw fringe land prices will collapse until it more closely resembles its agricultural value.

      • Hi UC – As mentioned the other day in your “WA has lost it” post, it does take years to rezone land. BUT, there is already plenty of zoned land that can respond to demand. It’s production line stuff – there’s always land at the beginning of a 5-year appproval process and land that’s at the other end of the process (i.e. 1 week from approval). It’s a bit like Cam says about a 747 – it might take years to build a 747, but there’s some at the beginning of that process and there’s 747s that are getting their seats fitted.
        Unresponsive supply is an issue, but I side with Deep T that credit availabiltiy is a far far far greater issue to affordability. That’s my view anyway.

      • “Unresponsive supply is an issue, but I side with Deep T that credit availabiltiy is a far far far greater issue to affordability. That’s my view anyway.”

        And yet half of the US (including Texas and Georgia, which also experienced massive population growth) experienced no price bubble despite their citizens having easier access to credit than Australia (including sub-prime mortgages)? Wonder why?

      • Allow me to generalise….some of the factors would be easy access to labour, low production costs, subsidised infrastructure, and importantly….the would-be developers were also able to access the easy finance. That wasn’t quite the case in AU. Even in the hey-days, developers in AU often had to top off funding with a bit of mezz.

  15. ceteris paribus

    IMHO, this article has placed far too much emphasis on the negative effects of so called “planning over-regulation”. It reads as a unidimensional economic strategy without addressing the social and environmental bottom-lines and ignoring the multi-faceted factors involved.

    There are many points of intervention to pursue the legitimate objective of reducing housing costs, other than trashing the natural and built environments through unregulated sprawl.

    • In Germany you can build nearly anywhere. You don’t really need a council approval to build a house on your land. You are bound by certain regulation for the area like max height of the building, distance from the boundaries but that’s just about it. The rest is up to you and the builder.

      I don’t really see why do I have to get my plans “approved” by the council if I obey these general rules?

      Anyway look at how much “trashing” of the environment and built area is in Germany. Google German village pictures and then Google Australian Village pictures and tell me where would rather live? Let me tell you there is no trash in Germany. By the way the price of housing is roughly steady there for the last 30 years or so.

      Why do you think if there is not stupid over regulation people will build trash to live in?

      • Jill

        “In Germany you can build nearly anywhere. You don’t really need a council approval to build a house on your land. You are bound by certain regulation for the area like max height of the building, distance from the boundaries but that’s just about it. The rest is up to you and the builder.”

        In Brisbane, you can build anywhere within the urban footprint without an approval if you comply with the regulations for max height, setback, etc (see

        Problems arise because the rules ar flexible. You can take a chance to go outside the rules and submit a development application to get a little extra height, a few more storeys on your apartment block, or a little more building area. In that case, you are at the whims of the council planners, but do have the right to appeal their decision to the Planning and Environment Court if you feel the decision does not comply with the guidelines of the plan.

        What happens then is that developers will seek to outbid each other for vacant (or not) development sites based purely on their gamble with a development application going outside the scope of the plan.

        What also happens is that planning rules change relatively frequently in some areas where councils are trying to encourage infill development. But landholders in these areas see no reason to sell if the rules are going to continually change in their favour – why sell now to a developer who can build 5 storeys, when in two years I can seel to one who can build 7 storeys and I can pocket the extra value of my land.

        More on that here

      • “……In Brisbane, you can build anywhere within the urban footprint…..”


        That is what makes the difference between Brisbane and Germany. Jill is right.

      • Umm… Germany also has such things Phil. It is not a free for all, and there is plenty of information about the layers of German planning to be found online.

        For example

        All local authorities must prescribe TWO plans (a flächennutzungspläne and a bebauungspläne)

        Some of the things included in these plans –

        “…plans prescribe the following:
        ● type and function of building to be built on a particular site;
        ● where schools, churches, social and cultural buildings and sports facilities should be located;
        ● road improvements;
        ● sewage and water supply systems;
        ● green area;
        ● areas of limited use according to the Federal Air Pollution Law;
        ● wetland areas and flood planes;
        ● agricultural and forest areas;
        ● areas of outstanding natural beauty

        the general zoning guidelines of the area use plan, prescribe the
        ● building height and number of floors;
        ● building massing;
        ● building materials;
        ● window proportions.”

        As someone who has tried to buy property in Germany I can tell you the main reasons for stable house prices include –

        1. stable prices generally
        2. tight control on foreign ownership
        3. high capital gains tax (some relaxations if you own more than 10 years)
        4. strong laws around rent increases and tenant rights
        5. tight access to finance

        Please try and stick to the facts. I read so much about the impacts of planning on the housing market with so little reference to the actual functional aspects of plans themselves.

      • @ Leith.

        1. Tight lending standards are more than just the going interest rate and deposit – it is how much of you income will be considered as qualifying (and at what ‘margin for error’ is applied to the qualifying rate), how they treat your savings and credit record, how second incomes are treated, how much repayment can be as a proportion of your income etc.

        I’ll admit I’m not an expert on this, but from what I read Texas state law is more stringent in this regard since their 1980s bubble.

        2. I read Hartwich’s report you linked – there was not one mention of ANY Australian planning scheme, or how State and Local laws interact. Perhaps it might be the case that had that been done, they would have found that the Australian planning system is almost identical to Germany’s.

        Have you read any town plans lately? One thing we seem to miss here is that, in QLD at least, local councils usually apply what is known as ‘self assessment’ for residential areas. This means that as long as you comply with the set-backs, height restrictions etc, then you DON”T NEED A DEVELOPMENT APPROVAL. There is no way for anyone to stop you building. None. In some areas there is a ‘code assessment’ which means that if you comply with the relevant codes in the local area plan the council MUST approve you application. There is recourse the the Planning and Environment Court if any person believes that the code was not complied with, even though Council does.

        For large scale subdivisions, yes, typically a development approval is required to change the designated use of the land, and the larger the development, the longer it takes. But, as but myself and Landdeveloper have said, the approvals system is a pipeline with plenty of ready approvals (more on that here – yes, 7 years of supply already approved in SEQ)

        I’m also still waiting to see a rent v income comparison in Houston, which at first glance appears to be very similar to Australia.

        The question is then not a question of the supply of housing (given supply and demand should impact rents, with prices as a function of rents), but the rate of return to housing investment. If rents are comparable in Houston and Brisbane say, why is the yield so much higher in Houston? Property taxes are part of it. Supply is not (otherwise rents would also be much lower).

        Regarding Atlanta Georgia, it seems their market suffered a boom and bust, even at lower price levels compared to incomes.

        “While the 6.19 percent year-over-year loss takes Atlanta to its lowest index level in a decade, the decline does not represent the metro area’s largest drop since the housing boom. From April 2008 to October 2009, the metro area saw the seasonally adjusted index decline between 7.7 percent and 15.17 percent”

        When share prices rise, even though earnings for a company are stable, we don’t all shout from the rooftops that ‘the supply of shares is not responsive!’ No. We wonder why anyone would pay a price that gives such a low return.


      • ceteris paribus


        In relation to housing price, Germany has a totally different demand profile from here e.g demographic profile and projections, consumer housing preference, housing policy.

        Second, I am not talking about micro “house planning” – I am talking about macroplanning e.g. enviromental balance and habitat protection, service infrastructure planning, the development of functional and social community spaces.

  16. Leith,

    Re the UK spike at the outset of the 1970s: It was replicated in most countries around the western world, including Australia and the USA. People tried to write the real estate bubble out of history by blaming the ensuing worldwide recession on the OPEC crisis, but they have TIME magazine’s excellent 1 October 1973 cover story (with which I can furnish you, if you like) to contend with. It was called “The New American Land Rush” and said “Land fever is is not confined to the US. In England, the average price of a lot has doubled in two years. The cost of raw acreage outside Munich has risen nine hundredfold since the early 1950s. Urban real estate in Japan shot up 30% last year alone, and a square foot in Tokyo now costs more than $2000.”

    Trying to shoehorn land price bubbles into a zoning/land supply phenomenon is not as productive as looking at what turned out to be an international fashion of winding back property taxes. Gough Whitlam’s contribution was, at the bleating of local government, to agree to meet half local government’s costs out of federal revenue – so, no longer responsible for its own funding, we’ve witnessed local government moving into new areas – some might call it living ‘high on the hog’.

    But we’ve discussed this before, and I’ve obviously been unable to convince you. 🙂


    • Bryan,
      Your analysis would improve if you separated superior land and marginal land in your analysis. A bubble in superior land (eg established housing in good locations) is always possible under relaxed zoning. However if marginal houses were still available at cost (eg fringe land at agricultural value) then ordinary people could avoid suffering by going there.
      In the case of restrictive zoning, fringe houses are made expensive and there is no escape for ordinary people.

      • Claw, you are spot on.

        Bryan Kavanagh, “1973” in the USA, was nothing LIKE “2007” in the USA, or “1973” in Britain or Japan. There is a world of difference between a “land rush” with very little price volatility, and a bubble in the price of “rationed” fringe land and every property in the city. In fact, lack of fringe development restrictions in most of the USA, caused stable economic growth for decades.

        Urban land price volatility is a major predictor of volatility in the economic cycle per se. I will go out on a limb here, and say that advances in “monetary policy” was little to do with the great era of stable economic growth in the USA (and other countries) for several decades after WW2. It was the stable urban land prices that did it. As we are finding out now, monetary policy is absolutely helpless once urban land prices get bubbling and volatile.

        Nothing the British did after introducing their “Town and Country Planning System” in 1947, was able to “stabilise” their property price cycle or their economic cycle.

      • You’re correct that the 70s peak was smaller than this one, but it was bigger than anything that had preceded it.

        The real point, however, is that most economic analysis fails to comprehend that land price is simply the private capitalisation of that part of the economic rent of land not captured to the public purse.

        The fact that free riders want to clamber aboard has little to do with supply and demand, and a lot to do with the lure that tax policy plays in real estate investment.

  17. Geography matters. California is a very mountainous state. Los Angeles is basically built out. As is San Francisco metro area. However towns like Riverside did sprawl. Now they are left with ghost towns.

    Nevada is an anything goes state yet their bubble and subsequent crash is worse than California.

    Anti-smart growthers are not pro-growth here in California. They are slow or no growth. Ask any California developer.