Carpe Diem

Chart of the day: California vs. Texas in one chart

texascalif

The chart above displays 1-unit housing starts for the entire state of California and the Houston metro area annually from 2011-2013 and year-to-date through March for 2014. During the period from January 2011 to March 2014, there have been slightly more single-family housing starts in Houston (95,037) than in California for the entire state (94,993). In this single chart, we can understand the dynamism of the booming, expanding Texas economy and housing market compared to the stagnation of the California economy and the housing market there for new construction.

In a recent column (“The High Cost of Liberalism“), economist Thomas Sowell offered some insights into the housing market in California that would help explain why fewer homes are being built in the entire Golden State than in one major city in Texas:

Liberals advocate many wonderful things. In fact, I suspect that most conservatives would prefer to live in the kind of world envisioned by liberals, rather than in the kind of world envisioned by conservatives. Unfortunately, the only kind of world that any of us can live in is the world that actually exists. Trying to live in the kind of world that liberals envision has costs that will not go away just because these costs are often ignored by liberals.

One of those costs appeared in an announcement of a house for sale in Palo Alto, the community adjacent to Stanford University. The house is for sale at $1,498,000. It is a 1,010 square foot bungalow with two bedrooms, one bath and a garage. This house is not an aberration, and its price is not out of line with other housing prices in Palo Alto. Even a vacant lot in Palo Alto costs more than a spacious middle-class home costs in most of the rest of the country.

How does this tie in with liberalism?

In this part of California, liberalism reigns supreme and “open space” is virtually a religion. What that lovely phrase means is that there are vast amounts of empty land where the law forbids anybody from building anything. Anyone who has taken Economics 1 knows that preventing the supply from rising to meet the demand means that prices are going to rise. Housing is no exception.

There are people who claim that astronomical housing prices in places like Palo Alto and San Francisco are due to a scarcity of land. But there is enough vacant land (“open space”) on the other side of the 280 Freeway that goes past Palo Alto to build another Palo Alto or two — except for laws and policies that make that impossible.

As in San Francisco and other parts of the country where housing prices skyrocketed after building homes was prohibited or severely restricted, this began in Palo Alto in the 1970s. Housing prices in Palo Alto nearly quadrupled during that decade. This was not due to expensive new houses being built, because not a single new house was built in Palo Alto in the 1970s. The same old houses simply shot up in price. That is part of the unacknowledged cost of “open space,” and just part of the high cost of liberalism.

MP: The religion of “open space” in California probably helps explain why there’s more new construction of single-family homes in Houston than in the entire state of California. And those “open space”-driven housing restrictions in California help explain the high cost of housing there relative to Houston. During the month of March, the median sales price of homes sold in California at $376,000 was almost exactly double the median sales price of homes sold in Houston at $189,000. The median sales price in the SF Bay area in March was $579,000, more than three times the median sales price in Houston. And those huge differences in housing prices probably help explain why firms like Toyota and Occidental Petroleum are moving from California to Texas, joining other firms including Industrial Brush, General Motors, DHF Technical Products and Sony Pictures that have relocated operations this year to Utah, Michigan, New Mexico and British Columbia respectively. Expect more out-migration of people, jobs, businesses and one-way U-Haul trucks from California in the future….

30 thoughts on “Chart of the day: California vs. Texas in one chart

  1. Of course there are far more natural limits to building in the bay area than around Houston. About the only limits are Galveston Bay, otherwise you can go a long way with no serious hills or bays. In the Bay area you first have the bay, and second east of 280 it gets quite steep quite fast. Construction if possible would be far more expensive than on flat land. In addition one would have to worry about landslides. In making the comparison between Tx and Ca the lack of natural limits to growth around Houston, Dallas, and Austin San Antonio, is a big factor.

    • Notice in your counter that you discuss construction of luck in the Bay area. The numbers in the article represent construction starts in ALL of California compared to only one major city in Texas.

    • Construction on hills is marginally more expensive. The entire city of SF was built on steep hills a long time ago before modern construction equipment. And you are ignoring the point that Palo Alto has a ton of open, non steep hill space to build on, and yet, they don’t build on it.

      SF city itself doesn’t have a ton of land left in the limits (although there is a giant wasteland of row homes on the west side that could be easily and cheaply developed into higher density housing), but go 30 miles southeast towards Pleasanton, and oh, tons of empty, open land that could be cheaply developed (and BART extended a little further).

    • Except nobody is making the comparison between Texas and California. The comparison is between Houston and California, i.e. one city against the WHOLE state of California.

  2. The “open space/liberalism/you can’t build here” argument made by conservatives is complete, total and utter non-sense.

    Land, houses, real estate costs are mostly reflective of supply and demand. There is plenty of available land to build on in California, and as someone who lived in that state for 38 years (1967 – 2005) knows, new land, housing developments had been growing in California for decades at the sort of rates that growth is now seen in Texas.

    The real difference is, while new housing developments in California continue to be built, they are pushed further and further from where the jobs are. Thus commute times and job availability in the areas where new developments are being built are less desirable, and a home where the jobs are and where the commute time is not prohibitive have become much harder to find and much more expensive.

    While in Texas, there is a smaller population, less traffic, commute times are still reasonable from the new housing developments and the cost of older housing nearer the jobs and with less commute times have not been pushed to un-affordable levels.

    But don’t deceive yourself about what will ultimately happen in Texas as well. It is the same “model” for development, de-centralized centers of employment, connected by freeway/tollways, suburban tracts, density levels increasing.

    The results in Texas will be the same and if you do not realize that you are attempting to deceive yourself.

    I have lived thru this process in California and I recognize all of the same trends happening in Texas.

    It is just that in Texas the process is 30 to 40 years behind in time relative to California, but ultimately they will end up the same for all of the factors and complaints this author has about California.

    • BTW: I was born in 1951 and lived in Pennsylvania until 1967 when my family moved to California. So I was old enough to be aware of the trends there. I was not born in 1967, so my 38 years in California were all years when I was entirely aware of these conditions. Growth in California in some of those decades was literally incredible, no different that what is now being seen in some areas of Texas.

      So don’t kid yourself, 30 or 40 years from today people will be fleeing Texas because it will have become over-crowded, too expensive, crime ridden, impossible commute times, over-taxed, over-regulated, etc.

      • Leslie

        Land, houses, real estate costs are mostly reflective of supply and demand.

        Exactly, and in areas where there is a demand for open spaces, or other limits on building, prices will necessarily be higher.

        So don’t kid yourself, 30 or 40 years from today people will be fleeing Texas because it will have become over-crowded, too expensive, crime ridden, impossible commute times, over-taxed, over-regulated, etc.

        Do you mean that Texas will become a liberal hell-hole like CA is now?

      • So very sad that huge rules and regulations and TAXES, are killing the dream in CA.
        TX has more jobs available, no State taxes, and less punitive regulations which makes all of TX more desirable place to live.
        Hope that many folks in CA will lose their homes due to huge property taxes.

    • No, you’re wrong. Thousands of acres of usable land is held as greenspace in Silicon Valley alone. Local governments spend hundreds of millions of dollars annually to grab up as much “greenspace” as they can to prevent development. That’s on top of outrageous and extortionate development barriers that obstruct new housing, if the developer doesn’t just give up in exasperation.

    • The other issue is zoning. Let factories open up in more places. Concentrating them in Industrial Parks far from where 15-20 dollar an hour workers can afford to live creates the traffic nightmares, and slums.
      The extent to which controlling everything is always on the minds of the anointed, and their ability to inflict their vision on the rest of us, is the root of the problem. Here in Chicago their are still neighborhood factories, stores, and restaurants. Here, they just regulate and tax them to the point of “near death”.

    • The article compares only a Texas city to the whole state of California. We’ll continue to see an urban sprawl coming out of the major cities in Texas.

    • Houston is bigger than every city in California except LA. San Antonio is bigger than San Diego. Dallas is bigger than San Francisco. And yet people keep fleeing there for job opportunities and affordable housing.

    • LOL, some wishful thinking from those in CA.
      CA has destroyed any growth plus the huge property taxes. Texas is growing fast due to the job market growing and lack of State taxes. I fear, that many folks will lose their housing in CA due to the growing taxes and the growing cost to even live there. CA is in the red, due to the leftist/liberal nutty regulations, both on business & folks.

    • I am a native Texan who lived in the Central Valley of CA for 4 of the last 5 years. From my personal observations, there is an overburden of government on all the areas historically present in Texas that provide the economic foundations for growth. Those include micro-regulation by government at all levels that creates a drag on economic growth, recovery, and the achievement of a sustainable economy. From my personal observations and experience, the overburden stems from state control of water resources, slow or no development of energy resources, abandoning higher education budgets, and (opinion) over extending taxpayer supported benefits to non-paying individuals who immigrate to provide a workforce unsustainable at personal income tax levels (13.3% state income tax). I did not say the immigrant work force should not be paid fairly. I do say the government is not following the laws in place for immigration. Legalize the seasonal immigrant work force, let them participate fully, and let 200 year old agriculture have the water it needs to produce 25% of the worlds food. The immigrants ride ancient school buses to pick strawberries and squat for 10-12 hours a day. The ‘growth’ in California agriculture is tax sheltered grape endeavors using solar power and dry growing techniques developed at UC Davis and Cal State Fresno. But wait, let’s cut funding to higher education, raise the PI tax, restrict water to the San Joaquin valley, and wait for an economic recovery… Because the government knows what ecocide looks like? Really? At least we can watch all our trials and tribulations sinking in a pool of wine.
      I’m not clairvoyant and can see 30-40 years into the future, but bullet train? Really? Who has a need to travel? Where’s the power coming from? CA is experiencing a loss of reliable infrastructure that will come home to roost in the next decade. Housing prices will peak as no one is available to buy that $ 1.5mm bungalow.
      I will agree that Houston, SA, Austin, DFW could use a bullet train instead of a NAFTA highway.

  3. Another thought is that the permitting process in CA is much stricter than TX.

    Anecdotally, my aunt and uncle are building a house out in Sacramento. It took them nearly three years just to get through the permitting process.

    • Whereas until 2 years ago in Tx if you were outside a cities extraterritorial jurisdiction you did not need a building permit, perhaps just a septic tank permit. Rick Perry put in an unincorporated area permit process a couple of years ago partly proving he thinks states can regulate folks. The process includes inspections. Previously there were none required by the state. However insurance companies might have required them. (Now this just applies to a home on a lot not to subdividing land where the county must approve the plat and has had to for a long time. But if you just bought a plot of the proper size (5 acres in the hill country for both well and septic) you did not need any permit to build.

    • “Anecdotally, my aunt and uncle are building a house out in Sacramento. It took them nearly three years just to get through the permitting process.”

      Why on God’s green Earth would anyone want to live in such a dysfunctional place?

  4. California actuly has laws in place to discourage single unit dwelling starts – leads to urban sprawl, and inefficient land use and wasted CO2. So the state has mandated that new housing developments need to be high density and frequently low income and they need to be serviced by mass transit – preferably mass transit that looks like trains – so every major urban center is building a trolley as well – under threat of fines from the state.

    That probably explains at least some of the “single dwelling statistics” being particularly low.

    I am not kidding about this either. Note that San Diego is not building trollys fast enough and is being threatened. My town, a suburb of San Diego, can’t build anything bit low income housing any more.

  5. Stagnation? funny…San Francisco area is booming, employers can’t find enough employees, and has one of the fastest growth rates in the country – despite being one of the most regulated municipalities in the US…

    • Be careful here. San Francisco is an outlier, and not part of the general trend.

      As we have noted, California is seeing an outflow of residents.

      San Fran has been able thus far to buck the trend thanks to Silicon Valley, but it is unclear how sustainable this is. The city is becoming very expensive to live in and a lot of poorer and middle class folks are getting squeezed out (which is partly why employers cannot find enough employees).

      It’s be a mistake to judge the entire state based upon a single data point, especially when that data point accounts for just 2.1% of the population

  6. Great. San Francisco is booming for the 1% and the 1% think it’s wonderful. Texas is booming because the 99% can actually live and work there without being bankrupted. I’d love to live in San Francisco if I could afford Russian Hill. I can’t so I’d rather live in Houston (I actually live in the NYC area – if you want to see what stagnation is in store for CA if it doesn’t change, look here).

    I am sure that eventually Texas will screw things up too, but it will take decades and decades before it does and during those decades life will be nice.

  7. This result is exactly what the liberal West Coast elites want. Let the hoi polio move to Texas… so long as there are enough undocumenteds remaining to clean their yards and be nannies for their kids.

  8. The people who can’t afford to live in California don’t vote in California. The people who do live in California like their real estate values high. Yes, a new house is very expensive but they can sell their old house and get a big capital gain. So this is a perfectly rational, if selfish, outcome. And in this we can see the true moral bankruptcy of liberalism: They are very generous with other people’s money but anything that touches their pocketbook is inviolate. Then they disguise this hypocrisy from others, and from themselves, by bleating about the sacred “environment.”

  9. In the 1970′s I learned a painful lesson about investing in Houston — from an INVESTOR standpoint, it’s a bad deal. It’s a GREAT deal for CONSUMERS — home buyers and renters. As an investor, I found that no matter how fast the area grew, housing prices didn’t appreciably rise, because those damn home builders would promptly construct more houses to meet the demand.

    Far better to invest in the artificial scarcity of California real estate. By using oppressive regulation, restrictive zoning and the turning more and more coastal land over to government, the state and local governments colluded to assist me — keeping the housing supply tight, providing me with windfall profits. Screw the consumers — especially the young. I got mine — the hell with everyone else. (No, I do NOT actually feel that way, but too many do.)

    But now it’s catching up with us. With even a modest rise in the interest rate, home ownership at these prices will be out of the question for most at such prices. The smart CA RE owner should be today looking at selling, taking the booty and fleeing to a more consumer-friendly state.

    BTW, a couple of facts to consider:

    1. Of 100 U.S. real estate markets, CA contains by far the least affordable middle class housing market (San Francisco). PLUS the 2nd, 3rd, 5th, 6th and 7th. San Diego is #5 (w/homes avg. 1,056 sq. ft.)
    http://riderrants.blogspot.com/2013/10/the-us-least-affordable-housing-market

    2. California ranks 48th worst for credit card debt and 49th worst for percentage of home ownership.
    http://riderrants.blogspot.com/2013/02/more-dismal-california-economic-rankings.html

    • Not going to be dull and say, well its not the 70′s anymore, cause that was atrue depection as stated… Just in my own observations i have noted a more than expected number of California residents moving into Houston and even more so Austin since 2007ish when i started noting again and again within non-sepcific social atmospheres id be amongst a newly migrated Californian. Usually heaing the cost of living as the major draw and then to boot there being no state income tax. Austin i noticed a much more noticeable surge, in which everywhere California plates, and overhearing conversations and somewhat of a noticeable change in the types of people i was seeing and the styles brought along with them.. could almost pick out who was and wasnt, not for bettwer or worse just stlye differences. im talking. i Arrived 2006 In Houston, i moved to what was a slow desolote washington avenue offr street, which i just had a feeling the arae may be on the verge if someone made the first big move.. and i got lucky and an investment was secured as things blew up shortly afterwards and i sold this month… I feel i could have squeeezed another 100K out of my 6 year old home if waited till next year… The neighborhooods around the downtown areas have always been typically undesireable,, this is no longer the case, as the transformation of the hoods have now well surpassed the transitional labels and have become the dominant fixtures of several of the adjacent neighbor hoods that were skirting the downtown area… i think this makes a huge difference in how Houston will continue to develop, and the market will be not only driven by economics but by the desire of people wanting to be downtown or nearby the downtown area in an environment that was too iffy for them years ago.. and rightly so,, but hat aspect has now been removed as a detterent and the drive to be near the center of the action will be stronger and stronger and i am no expert but that what i sense will be a very important reason that investment neartown will be sound… with my sale closing in 10 days,, im feeling like im now left out of the fray, if i knew how to build id love to take my money and put it into a lot purchase and build a home or two that had some sort of unique features or specific design flare to be proud of and be my own income generator.. but likely ill now be renting … and handing it away to strangers little by little…lol just my worthless two cents.. i hope everyone finds houston to be a surprisingly pleasant city to reside as i have.

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