by James A. Bacon
The Hampton Roads and Richmond housing markets are “moderately unaffordable,” according to the 10th Annual Demographia International Housing Affordability Survey: 2014. While not exactly a kudo, that classification puts the two of Virginia’s three largest metros in the top one third of housing affordability for major markets (one million people and over) in the English-speaking world (the United States, United Kingdom, Canada, Australia, Ireland, New Zealand) as well as Japan, Singapore and Hong Kong.
Demographia classifies the Washington metro region as “seriously unaffordable” based on 2013 data, yet the capital region rates better than Denver, Portland, Boston, New York and San Francisco, not to mention such expensive outliers as London, Sydney and Hong Kong. (The study uses a multiple of 3.0 as the threshold of affordability — if median housing prices exceed median household incomes by more than three times, a region is deemed unaffordable.)
The authors contend that housing affordability is largely a function of regions’ “urban containment policies,” or land use controls that restrict the supply of developable land on the grounds of livability, sustainability or smart growth.
Housing affordability has deteriorated sharply in the past decade in Australia, Ireland, New Zealand, the United Kingdom and in some markets of Canada and the United States (evidenced by sharply higher Median Multiples). In every market where there has been a sustained and significant increase in the Median Multiple, more restrictive land use policies have been implemented.
I have extracted Demographia’s data for Virginia’s three major metropolitan regions below and bracketed them with the most affordable and least affordable major markets in North America, Pittsburgh and Vancouver.
Demographia maintains that its methodology actually understates the differences in housing affordability. The average new house size in the United States, which tends to have more affordable housing markets) is significantly larger than in other countries: 250 square meters in the U.S. compared to less than 1oo square meters in Ireland, Singapore, the U.K. and Hong Kong. Not only is the median house size more affordable in terms of median income, it is bigger, which translates into a higher standard of living.
Bacon’s bottom line: The Demographia study drives home a partial truth: Land use controls restrict the supply of developable land and, all other things being equal, a restricted supply of land drives up housing prices and diminishes the standard of living. I don’t see how any serious person can dispute this conclusion.
However, all other things are never equal. The Demographia analysis is shorn of critical context.
Transportation. It is highly deceptive to focus on the cost of housing without also considering the cost of transportation. It is axiomatic that the price of housing is largely influenced by its accessibility to jobs and amenities. Many Americans (and undoubtedly citizens of other countries) are willing to trade higher transportation costs and longer commutes for lower housing costs, and vice versa. Housing cannot be considered in isolation from transportation. If higher housing costs are offset by lower transportation costs made possible by restrictive land use policies, livability is not necessarily sacrificed. Therefore, the Demographia analysis is incomplete.
Infrastructure. The pattern and density of land use impacts the cost of utilities and public services, including water and sewer; fire, police and rescue; and school busing, just to name the most visible. In the United States, the cost per dwelling unit of providing these urban amenities rises when new development occurs in more scattered, low-density locations. Inefficient settlement patterns lead to higher costs — and higher taxes — than a municipality would incur otherwise. Demographia’s analysis does not consider these costs.
Demand. The price of housing reflects the equilibrium between supply and demand. One reason that housing prices are so high in San Jose (Silicon Valley) and neighboring San Francisco is that there is so much wealth creation occurring there that far more people would like to live there than can afford to. San Francisco has added 1,500 housing units a year over the past two decades, according to Gabriel Metcalf, hardly a no-growth policy. The problem is that the slowly expanding housing stock could not keep up with demand. Contrast that to super-affordable cities like Pittsburgh and Detroit. The population of the Pittsburgh MSA is lower than it was in 1960. Need I even mention the situation in Detroit? Sad to say but many of Demographia’s most “affordable” cities have been economic laggards over several decades. That path to housing affordability is one that few others would want to emulate.
That’s not to say that Demographia is wrong about the link between urban containment, housing affordability and standard of living. But the issues are far more complex than Demographia lets on. If study authors Wendell Cox and Hugh Pavletich want to persuade the unconverted, they need to up their game.
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