Texas wins on housing

By Leith van Onselen

Earlier this year, Trulia published an interesting article on how thousands of Californians are emigrating to other states due to exorbitant housing costs, with many choosing to settle in Texas:

A constant debate in California politics is whether jobs and people are leaving the state…

Here are the basic facts. In 2011, 562,000 people left California, and 468,000 came, according to the Census’s American Community Survey. That means 120 people moved out of California for every 100 people who moved in. Out-migration reached its peak in 2005, when 160 people moved out of California for every 100 people who moved in. The California exodus rose with the housing bubble and subsided in the recession. Lower home values in 2008-2011 made California more affordable, encouraging in-migration and discouraging out-migration, as well as pushing some California borrowers underwater, further discouraging out-migration.

Who leads the charge out of California? Even though California’s richer residents face high tax rates, lower-income households are more likely to leave. From 2005 to 2011, California lost 158 people with household incomes under $20,000 for every 100 who arrived, and 165 for every 100 people with household incomes between $20,000 and $40,000…

Since 2005, far more Californians have turned Texan than the other way around: 183 Californians moved to Texas for every 100 Texans moving to California. (The average flow since 2005 between California and all other states – not just Texas – has been 133 out for each 100 in.)…

Let’s take a closer look at California versus Texas. What does Texas have that Californians want? Cheaper housing, more jobs, and lower taxes.

…housing costs matter the most: the exodus from California was strongest when and where the gap in housing costs between California and other states was biggest. This detailed analysis confirms what the above chart showed: outmigration from California was most dramatic in 2004, 2005, and 2006, which were also the years when California home prices were most expensive relative the rest of the country.

In the above Business Insider video, Trulia’s Chief Economist, Jed Kolko, builds on his earlier work by discussing the key reason why Americans are moving from California to Texas: cheap housing.

The below charts provide further insight into why Californians are migrating to Texas.

First, house prices in California are very expensive (and volatile) compared to the national average, whereas Texas’ house prices are highly affordable (and stable), due to its abundant land supply and permissive market-based urban planning system (see next charts).

Because housing is so affordable in Texas, the proportion of median household income chewed-up by interest payments is very low compared to both California and the national average (see next chart).

Amazingly, affordability and stability of Texan house prices has been achieved despite very strong population growth, with Texas’ population growing at more than twice the rate of both California and the national average between 2000 and 2012: a testament to Texas’ highly responsive urban planning system (see next chart).

Finally, affordable housing and below average unemployment are not the only things going for Texas. It also has experienced higher than average income growth (see next chart).

Chalk that up as a win for responsive land-use (planning) regulation.

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Comments

  1. darklydrawlMEMBER

    We could learn a lot from how Texas handles both increased population and housing.

    Be it by good luck, good planning or a bit of both they are in a great place right now.

    Their economy is also doing well, perhaps because of the above combination.

    Cheap housing and a ready supply of labour isn’t going to hurt.

  2. Please mention property taxes in Texas. Texas has no income tax is because they have higher property tax and no prop x limiting property tax increases to 1% a year. Obviously Texans store their wealth in a more tax efficient way.

    Given tax deductibility of mortgage interest in the states property taxes more than double effective interest rates.

    Further given the fact that they require immediately liquidity they stop the most egregious ARMs, drag loans and other weapons of control fraud.

    Finally, Bill Black et al destroyed the Texas finance mafias in the 1980s with 1000s of convictions which undeniably impacts loan formation and house prices.

    What do you think would happen to the Australian market if property taxes were at 3%?
    Model the cash flows for a family with a top decile income and 2 properties priced at median levels under a 3 percent property tax. (Hint, its ugly. Or beautiful depending on your view.)

      • Thank you very much for linking that post. I try to read what you guys put out since it is outstanding, but evidently I miss some things.

        Nevertheless, I think Cameron Murray nails you pretty convincingly in the comments.

        Climbing into the thickets of state by state tax laws in the US is very confusing. It is easy to overlook certain taxes (school taxes can be levied on property for example) and the laws which govern how much tax can change in a year. There are other unknown unknowns.

        I suggest we bypass such debates.

        Use current Australian figures (base on top decile family income and average house prices) and laws (neg gearing, no capital gain on primary residence, etc.) and model the cash flow for a family with a single IP. Change the interest rate and the rate of appreciation for the houses and rent as you see fit.

        The tax means the family cannot remain liquid at these house price levels.

        If they pass the tax on in rent, they pass it to families down the income scale and the picture is uglier.

        If you are feeling truly sadistic model the case for 2 IPs.

        This will convince you that a change of tax alone would devastate the wealth by IP model, without considering land regulation, and drive house prices dooooown.

      • rash5290 – I don’t believe that it’s property tax alone, but it certainly plays a part. If we punitively taxed lipstick women would find alternatives very quickly.

        I think that it’s a mix of desireability, taxes, and supply.

      • Rash5290,
        There is actually quite a range of data from cities from all over the USA, re housing affordability. The affordable housing everywhere correlates with the elasticity of supply of housing. All other factors are peripheral. There are affordable cities in States that lack Texas’ property tax system. There are unaffordable cities in States with property taxes.

        Comparing Texas and California just helps to rebut the hoary old argument that we hear all the time, that unaffordable housing is due to “demand”, and “supply” apparently is irrelevant. This is Cameron Murray’s laughable position, in spite of all the counter-evidence that has been pointed out to him – such as unaffordable property prices in stagnating, unpleasant Liverpool versus affordable property prices in booming, sunbelt Houston.

        But if you look at all the “Demographia” work on the entire data set of US cities, everything becomes much clearer. Boston is unaffordable and anti-growth. Philadelphia is affordable and pro-growth. Portland is unaffordable and anti-growth. Nashville is affordable and pro-growth. The correlation holds for the entire data set of some 260 cities.

  3. Darwin is our California.

    Exactly the same thing is happening here. Long term residents are leaving Darwin due to massive price hikes in the cost of accommodation.

    The difference is that our bubble will pop when the Inpex project is finished.

  4. Robert Sherlock

    Suburb: The Woodlands, TX
    Population: 65,491
    Median family income (per year): $124,939
    Median home price: $214,593

    After Income Tax, Interest, and Property Taxes the Average family has $100,000 per year left over! That is why the Texas economy is booming. Billions of disposable income in one suburb alone. And next year , the worlds biggest company, Exxon finishes its World wide headquarters and another 10,000 high paid workers will call it home.

  5. JacksonMEMBER

    And they just executed their 500th person since 1976, better than one a month. Will be interesting to see if the Californians bring their social values with them.

  6. Jed Kolko, in that video, is a guru. Housing costs are actually the main thing. This makes a bigger difference to cost of doing business than tax rates. Inflated house prices feed through to workforce cost pressures, and also diminish discretionary spending in the local economy (and this latter effect compounds as money circulates through the local economy).

  7. Stephen Morris

    “Chalk that up as a win for responsive land-use (planning) regulation.”

    I could follow this article right up to the last sentence, at which point the writer tries to “make an ought from an is.”

    This is a “win” only if one regards the criteria of affordability and unemployment as the sole criteria for determining “victory”.

    Restrictive housing policies aren’t imposed out of some sort of bizarre irrationality. They are usually imposed because some members of society want to preserve the ambience of their living environment.

    If one ignores this, one might as well be discussing life on another planet. The entire argument becomes inane.

    The two critical sentences in the article are these:

    “Who leads the charge out of California? Even though California’s richer residents face high tax rates, lower-income households are more likely to leave.”

    For those who are not constrained to thinking inside the square, that evidence suggests something very important:

    As people’s incomes increase, their demand for intangibles (such as ambience) becomes more important than affordability or employment. Poorer people may be prepared to leave for “Labour Camp Texas”, but wealthier people prefer to stay in California.

    The real issue here is how to aggregate the preferences of those who wish to preserve ambience (through planning restrictions) with the conflicting preferences of those who give greater weight to affordability and employment.

    In this regard it is interesting to note that California (unlike Texas) is a partial democracy in which the citizens as a whole can decide these matters directly. And they decide directly for planning restraints.

    More important is the evidence from Switzerland which (unlike either Texas or California) is a full democracy.

    And in Switzerland citizens at both the federal and cantonal level vote directly for such restrictions. Indeed, just in the last year the Swiss endorsed a popular referendum limiting the number of holiday homes in alpine communities.

    So, who is better placed to make these decisions?

    Economist who employ “is-ought” fallacies in an an attempt to impose their own personal preferences on the populace at large?

    Or citizens, voting directly and democratically?

    • Great comment Stephen,

      Indeed who should decide? Take the example of a suburb in Sydney, say Hornsby. Who should decide how many dwellings get built there?
      Should the current land owners decide exclusively?
      What about people who rent there?
      What about the thousands of people who do not, cannot currently afford, but would like to?
      What about rich Chinese? Do they get a say?

      • Stephen Morris

        In fact, the logically coherent solution to this controversy – as with all controversies – has already been solved. It comprises:

        a) pursuing the policy reflecting the aggregated preferences of the individuals concerned, where the “aggregation device” is itself chosen directly or recursively from an initial non-privileging aggregation device (i.e. a “democracy eigenfunction”); and

        b) choosing “the individuals concerned” using a non-privileging polity market which has itself been constituted using a democracy eigenfunction.

        Unfortunately, the solution is rather too abstract for most people even to comprehend . . . not to mention the fact that those in entrenched positions of power would savagely oppose its implementation.

        But none of that makes is-ought fallacies anything other than is-ought fallacies!!