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California vs. Texas in one chart

As can be seen on the following chart, 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. The chart 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.

 Housing Starts Authorized by Building Permits
1 Unit Structures, California vs. Houston, 2011-2014
20140520_Perry

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.”

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….

Dr. Mark J. Perry is a full professor of economics at the Flint campus of The University of Michigan, where he has taught undergraduate and graduate courses in economics and finance since 1996. Starting in the fall of 2009, Perry has also held a joint appointment as a scholar at the American Enterprise Institute. This post originally appeared on the website of the American Enterprise Institute and is republished here with permission from the author.