I agree with your conclusion, and I'd just point out that in the penultimate section, the softening relationship between amenities and population growth is still perfectly consistent with high demand for amenities -- I just think (as you conclude) the elasticity of housing supply in the West has substantially shrunk, so that the high demand is no longer transmuted as smoothly into the growth of quantity in homes, but rather passes through into higher prices.
For an interesting case study on how mountain towns in the West have starkly turned against supply growth, check out the sad tale of Cle Elum, WA, on I-90 a couple hours east of Seattle in the Cascades, which has just declared bankruptcy in the face of an eight-figure settlement it owes for reneging on a development plan it struck in 2011.
TL;DR -- a developer had plans to build several hundred homes on a few hundred unincorporated acres adjoining the town; the town struck a bargain, annexing the land in order to impose some constraints on the developer, which the developer agreed to in exchange for fast-tracking permits; then in 2019, when they finally hit the gas pedal to build, a new city manager in Cle Elum reneged on the deal and used every last move in the NIMBY toolkit to try to stop the building and/or extract costly new concessions.
I think it's the same way all across the West, from California to Wyoming to Colorado, as incumbent owners seek to prevent new development nearby, essentially pulling up the ladder and saying "I got mine, pal. Take a hike!" to would-be new neighbors.
Not in Boise. Land use laws are roundly ignored the moment a developer begins sniffing opportunity, and whatever concessions from the city they want, they get!
Place has exploded and tons of crapshack subdivisions and future rental/townhome slums have been constructed on land that should have either been left open (green space, farming, etc.), or developed as office and light industry, or restricted to its original land use designation. Massive overbuilding based on blind optimism and the promise that the economy never goes south (2008 be damned, this time it’s different!!!), now has developers worried and ordinary people just looking for affordable shelter, gaining hope as the insane pandemic boom is finally starting to fade.
The city is now filled with two kinds of migrants: first, couples and families fleeing the more high-cost, high crime cities for what used to be a slower, safer, more affordable and more relaxed family-friendly environment, and highly paid remote tech workers seeking the safer and more outdoorsy life. For many, the bonus amenity nobody talks about is the heaping side of virtuous self-righteousness which comes as a reward for colonizing the savage, unwashed local culture with all the “good ideas” the internal migrants moved away from.
Sadly, both the climate and the local natural
environment are both deteriorating. Living here with no air conditioning is no longer possible unless you’re prepared to be miserable for four months of the year. And the hills once covered with lush green sage steppe, are now largely denuded and covered only by cheat grass and other nasty invasives. The greenbelt along the river, once a quiet, peaceful, dry and beautiful recreation area, is now mostly a humid, crowded thoroughfare dominated by high-speed cyclists and overgrown weedy trees and shrubs that choke off the natural area. But, hey, it all still works if you just don’t pay attention and lower your standards, which is A-OK by most people!
Yes, Boise's wonderful natural amenities attracted a tremendous surge in demand, and I think the whole valley is somewhat unique among Western towns for a relatively high elasticity of supply to meet that demand. It took a few years, and I agree that rapid expansion of housing supply is disruptive, and has successfully begun to dent the overwhelming shortage of homes to meet that surge in demand (helped along by a bit of mean reversion as some of that demand sloshes away).
And yes, climate change has also made summers less tolerable without A/C in much of the West, particularly by raising the nighttime lows and humidity, but also by choking the air with much more wildfire smoke than 12 to 30 years ago. In Seattle you used to be able to set your watch by the nighttime cooling: it would drop sharply into the 60s soon after dark, but now it's pretty routine to see temps lingering in the muggy 70s at the same time the wind drops off.
I suspect the driver of improving natural amenities on Brian Potter's post was the warming we've seen in winter, so that bitter cold has gone from routine to rare, while our rising summer dewpoints and warmer summer nights are still much nicer than oppressive muggy summer weather back East, so they're not counting against us too much. But that's just speculation.
Yes, still better than the east coast or Midwest, but it’s getting to be more like trade offs rather than just overall better. For example, to respond to your comment about fire, we now have smoke season, as our answer to flood or hurricane season. That never used to be!
Sadly, people who weren’t here in decades past and who don’t really care, don’t know what they’re missing and will never be able to experience because it’s just gone. But it’s a real loss to those who once knew it. And to the local flora and fauna.
The local surge in housing demand was particularly destructive because it wasn’t organic. It was a toxic and never sustainable brew of suppressed interest rates, Chinese investors fleeing capital controls at home (buying at insane prices on the coasts, and setting those homeowners free to come here to buy); grossly inflated salaries in the tech industry thanks to its own boom, plus tons of “free” money stimmy paired with completely ridiculous forbearance programs and lack of common sense among the public. These things do not an economy make! But don’t you dare try speaking common sense or actual data to anybody. Don’t even bring up the city’s own development laws! Developers, business leaders, realtor groups and city officials would have none of that. They all either lied like hell to themselves, or really were just that butt stupid, and insisted that we “had to” (HAD to!) screw up the city to accommodate everybody who wanted to come here. Because, you know, growth is good and progress can’t be stopped, yadda, yadda.
Well, surprise, surprise! The chickens are beginning to circle overhead, and the officials and business people who all followed the Gordon Gekko model of economics, are beginning to worry. But their plan is to keep going with more of the same! Because no strategy works like doubling down on failing policies. The tide is pulling out yet they’re steaming right ahead with new delusions of grandeur, constructing thousands and thousands of new, increasingly shitty, “affordable” housing units that still aren’t affordable to many.
The motto for many years has been that squeezing a literally infinite number of people into tinier and tinier spaces, will keep housing within reach and “protect the environment.” In reality, it will do neither! It will only allow landlords and investors to keep overcharging for space, while leading to the predictable outcome of bigger and bigger hordes of people loving the local environment to death.
Until the inevitable reversal comes along.
At some point the quiet creaking noises of a local housing market beginning to soften, will lead to the boom of an implosion. And an entirely new set of problems will come along (like, who is going to be able to pay the property taxes required to pay off the massive expansion of the airport, or the “bike skills” part developed as a tax dodge by the Albertsons family, then dumped onto the public tax rolls for upkeep in perpetuity?)
Meanwhile, the number of Blue state colonists and Indian tech workers who are deciding that the local culture and natural environment just isn’t their cup of tea, and who have the means to leave, are beginning to tiptoe out. It’s just a small trickle, yet, but the direction is telling. And they will eventually leave behind a rather hollowed out and lower income city with a host of new problems to tackle. All quite unforseeable, of course, if the leadership and experts are to be believed.
I was a landscape contractor in CA for 30 years. Up until about 2003 a 6 foot perimeter block wall was typically specified at 12"X12" footing, rebar every 36" (and poured) with a solid beam on the top course. Everything else was hollow. Permits were often unnecessary. In San Clemente, with the city flush with rising property tax values they hired more engineers and more inspectors to enforce the new engineering specs. Now a freestanding wall has to have a permit, a 24"x24" footing, rebar every 16", and all cores filled solid---theyre making freeway walls around gardens!! I understand this is for earthquake proofing but it's way overboard. So that's one cross section of why housing is so expensive in CA anyway.
Another big issue is that the western states have a huge proportion of land in public ownership (usfs and blm mostly) leaving much less land available for private purchase. That’s one of the primary amenities for people who enjoy being active outdoors, but surely impacts the cost of land and housing. The idea being floated of wholesale disposal of public lands is horribly conceived, but small targeted public land sales on the periphery of urban areas can work beautifully, and the Southern Nevada Public Lands Management Act is an excellent example.
Also rural zoning often has very large minimum lot sizes (40 acres is common). It would also be interesting to see if overly prescriptive building codes which sometimes arise at the state level (but effecting rural areas) corresponds with blue vs. red political orientations in the metro areas around state capitals.
That publicly owned land is one of the amenities luring people. We moved to a small town in Washington State to be near Olympic National Park. There's a dearth of public recreation opportunities in much of the country. COVID led to another surge of professionals and better off retirees moving out here. You can see the changes in what the local Safeway stocks. Two decades ago, we spoke to the produce manager who claimed that no one would ever buy radicchio. Needless to say, that is just one of many new things in the produce section.
Interesting piece. I suspect part of what is going on also is a) there are as many or more people living in red eastern counties with the same dynamics, they are just much more densely populated and so don’t pop out on the map (zoom in on Boston, ny, dc etc) and b) this particular metric is skewed by the dynamics of supply restriction, where residents get bifurcated between incumbents who are hedged (rent control or who bought when it was much cheaper) and everyone else who has to pay market prices. The former group will end up with extremely high house value / income on paper (but it doesn’t matter since they are hedged), and market housing prices will be determined solely by the latter group. When you have a metric that mixes these groups together you will end up with a high average house value / income in these areas but i bet if you limit the analysis to the latter group you will see that house price / income makes a lot more sense.
My guess is that depressed areas will be green (too many houses chasing too little demand and poor outlook for houses as a store of value), less supply restricted areas with growing demand will be yellow, and supply restricted places with growing demand will be red (because if the dynamic above).
Great article. It begs the question about supply constraints. One hypothesis is that this is market failure or a function of the rural homebuilding market not being lucrative enough to invite competition. If you add up the population of rural counties, is it big enough in aggregate to invite more homebuilding that would push prices down?
This would probably require new entrants from outside these communities. If I were a homebuilder serving rural communities, it may not pay to build more houses. First, I may have a limited supply of labor. Second, I'd probably not have the financial capacity to build a lot of home and could struggle to raise financing to expand. Third, most smaller business owners aren't very sophisticated when it comes to making long term capital/financing decisions. Even if I could find the labor and the financing, maybe I'd just be really happy that I'm making good money given that selling prices have risen more than my costs.
In other words, could it be that demand is more elastic than supply and that the difference is greater in rural cities than in urban cities. Therefore, changes in demand will lead to bigger and longer-lasting price changes.
I know people in my area who build spec houses, and getting the necessary skilled labor isn't always easy. There are only so many people out here doing drywall, masonry and other skilled trades. There's a lack of human capital. We had a company that made high end leather bags. They wanted to expand but couldn't find or lure leather workers, so they moved. Heck, there's one of those highway traffic warning signs offering a county job as a purchasing agent. You'd think they'd put it with some nicer scenery behind it than the dirt piles for public works.
Some other possible reasons for exceptional prices in the West (in addition to yours, which all sound right/plausible):
- Overflow from the major Western region metros, but without the declining/below-peak-population cities found throughout the rest of the country to pick up the slack
- Relatedly, very high prices in places like California creating literally millions of people with anywhere from $500k-$5 million in home equity, who can then spend that money buying homes in rural areas throughout the region
“the most obvious explanation for higher home prices is simply demand: more people want to live in western states than in other parts of the country, the supply of homes isn’t keeping up, and this is pushing up the price of housing.”
I think you are misusing supply and demand here. Even if demand is higher in the west, supply should be able to keep up given the same input costs unless the elasticity of supply is low. That is, unless it is inherently more expensive to build in the west than everywhere else, the long term supply should adjust so that houses sell for roughly the same price unless expanding production of housing is limited in some way in the west that is not so much elsewhere. So it should be a supply constraint, either because labor or materials is more expensive out west or because expanding production is more difficult out west. Maybe buildable land is scarcer out west, and that is why the supply can’t expand as much, but something is holding back supply.
> Maybe buildable land is scarcer out west, and that is why the supply can’t expand as much, but something is holding back supply.
Ding, ding ding. We have a winner. In the western states much of the land, frequently over 50%, is owned by the federal government is not available to be built on.
Look at Seattle. Over the past two decades, they have built tens of thousands of new apartments and homes, but housing costs have still risen. Why? Seattle is an economic boom town for software development. The seed was the local university providing the kernel of a trained work force. Then the job growth encouraged skilled workers to move here and those skilled workers attracted more employers. It helps that moving to Seattle with its natural amenities and half decent weather is an easy sell for recruiting.
You can see similar effects even on the other side of the Cascades. For example, the Spokane area is booming with new neighborhoods coming together east of the city to the Idaho border. It reminds me of Long Island in the 1960s. A good chunk of it is skills driven as it is in other areas. It isn't all high tech either. There are also skilled jobs in agriculture, especially growing fruit of various kinds. They don't grow apples on trees anymore. They're espaliered like grape vines.
You are looking at Seattle, and expecting that the entire rest of the west on that map is working the same way?
Explaining why metropolitan areas have higher housing prices is unnecessary, as the answers of limited space and inability to build new units generally do the trick. New York and Seattle are both expensive. The problem is explaining why counties in the middle of no where in the west are also so expensive compared to counties in the middle of no where everywhere else in the country.
It's not just Seattle. It's similar on the other side of the Cascades though not quite as intense and from a lower base. Ellensburg is growing, driven by the university there. Spokane is growing east towards the Idaho border. It's hard to miss all the new suburbs on I-90. Once again, the university there is helping drive this. Even in agricultural country, the business is moving up the skill chain since so much of it is grapes, hops and other fruits rather than something highly mechanized like wheat.
There's lots of physical land, but water is an important limit. One realtor has a booklet for newcomers explaining western water rights e.g. just because a stream crosses your property doesn't mean you can take a drink. Skilled labor is a problem, too. I know the companies installing windmills appreciate the community college courses on the technology. I'm not going to say the area is booming, but the population is growing and housing is more expensive than it was.
That was the last sentence in my post. However, while that is true close to the coast, the population density of basically everywhere else on those maps with high prices out west does not quite justify why the land values would be bid up so high, unless something is artificially limiting the amount of land one can build on.
I had more in mind that the west coast scored higher on the natural amenity scale shown in the original post, where there looks like a pretty good overlap between these very high cost areas and places with natural amenities. So my take, in line with the author's, is that these high natural amenities are being priced into the value of the land and it's not just a matter of scarcity of land to build on.
This isn't to say artificial restrictions aren't making the problem even worse than they need to be of course.
I am highly skeptical of natural amenities scores, and how they drive demand. I agree that people like to live in nice places, with nice outdoors areas. I do myself. I remind myself, however, that most people, literally a plurality in the USA, live in cities which are... low on natural amenities. That makes me question how much people are paying high housing premiums to be near nature.
I also actively disbelieve that those amenities scores mean anything rigorous or reliable. How are they calibrated? How are they tested? It is likely just marketing nonsense.
Glad you wrote an article on this after sharing that figure in your Weekly Reading List! This is a question that I have long been confused by. Living in SoCal, I have never understood how a new house in the midwest can be built and sold for less than the cost of a modest renovation to my 75 yr old house. I understand higher labor costs (driven up partly by higher housing costs), but does this also contribute to higher building material costs? You did a great article a few years ago with a cost breakdown of a single family home. Would be interesting to see how that compares in Western States to the rest of the US..
In the graphic "Median Price per Square Foot of New Single Family Homes", it is noted that it excludes land costs. It would be useful to see how much of the difference in home prices is driven by land costs. Certainly here in BC, land costs for lots are quite significant.
Dispatch from the eye of the perfect storm: San Francisco. We check just about every box on the list, in spades.
I would emphasize construction wages - I recently got an estimate for some electrical work on my house by a licensed electrical contractor (non-union) that worked out at an eye-watering $240/hour just for his labor, so if (big if) he works 2,000 hours/year and puts 20% down he might qualify for a mortgage on a very average 3-bedroom home in a modest neighborhood in the city.
Then I compare the heat index (or what Wunderground calls Feels Like) that is 60°F here today vs. 99 in Miami and 100 in Tuscon. On balance, I'm staying put.
That $240 is "fully loaded", that is, it includes overhead like medical benefits, 401k, vacation time, a buffer for slack periods, office and dispatch expenses, the truck and tools among other things. I doubt your electrician is making $480K a year in take home pay.
Property tax rates are also a factor. California and Arizona limit property taxes to approximately 1% of market value. And California proposition 13 strictly limited reassessments. Here in upstate New York, property taxes can be 3-4% of market value and reassessments are regular. While the west has more expensive sale prices, the monthly payments on a mortgage and tax escrow are going to be less dramatic. In any case, the all-in prices are what the market will bear.
And when you look at California, limited property tax had negative impacts on public schools.
I live in Chicago's north suburbs and moved three years ago. We had choices in Cook County (includes Chicago and higher property taxes) and Lake County (slightly lower property taxes). To assess affordability, pulled a sample of transactions from the various towns we were considering moving to and compared everything on a cost per square foot basis, including both the purchase price and the present value of property taxes. The result is that prices were very similar. Higher taxes = lower purchase cost per sq foot. In other words, the market here is pretty efficient. So, the taxes are probably incorporated into the median home values.
Demand in the west has jumped since 2020 when work from home exploded.
These people generally have higher incomes than the natives, driving up prices. If one can live anywhere, natural beauty outsizes other considerations.
Demand in rural Western areas outside the big metros may in part be driven by spillover demand created by the vast shortage of housing in the highest-demand metro areas like the Bay Area and LA. As the article articulates, the Bay Area and LA have uniquely high artificial barriers to housing erected by state and local govs (local zoning, slow permitting, CEQA, fees, etc). Conceivable that people who prefer not to leave the state entirely move to rural inland areas where housing is more affordable
A couple of other factors may be at play: In the West property taxes tend to be lower. Public infrastructure is newer and much of the roads are not exposed to freeze-thaw cycles. In Arizona a large part of public education is funded by State Trust Lands revenue. Climate is another factor; the HDD (Heating Degree Days) and CDD (Cooling Degree Days) tends to favor the SW. The total cost of home ownership equals mortgage cost (home value) + property taxes + insurance + maintenance costs. You can pay off your mortgage, but you cannot pay off your property taxes. This favors regions with lower property taxes.
Is there a miscalculation in the first table? A quick search here: https://www.census.gov/quickfacts/fact/table/US/HSG495223 returns something in the ~$300,000 range, not $211,000 as quoted. Similarly a search for median household income returns ~$80,000 rather than $60,000. Perhaps you're not weighting the average by number of homes in each county which results in the lower values?
I agree with your conclusion, and I'd just point out that in the penultimate section, the softening relationship between amenities and population growth is still perfectly consistent with high demand for amenities -- I just think (as you conclude) the elasticity of housing supply in the West has substantially shrunk, so that the high demand is no longer transmuted as smoothly into the growth of quantity in homes, but rather passes through into higher prices.
For an interesting case study on how mountain towns in the West have starkly turned against supply growth, check out the sad tale of Cle Elum, WA, on I-90 a couple hours east of Seattle in the Cascades, which has just declared bankruptcy in the face of an eight-figure settlement it owes for reneging on a development plan it struck in 2011.
TL;DR -- a developer had plans to build several hundred homes on a few hundred unincorporated acres adjoining the town; the town struck a bargain, annexing the land in order to impose some constraints on the developer, which the developer agreed to in exchange for fast-tracking permits; then in 2019, when they finally hit the gas pedal to build, a new city manager in Cle Elum reneged on the deal and used every last move in the NIMBY toolkit to try to stop the building and/or extract costly new concessions.
I think it's the same way all across the West, from California to Wyoming to Colorado, as incumbent owners seek to prevent new development nearby, essentially pulling up the ladder and saying "I got mine, pal. Take a hike!" to would-be new neighbors.
Not in Boise. Land use laws are roundly ignored the moment a developer begins sniffing opportunity, and whatever concessions from the city they want, they get!
Place has exploded and tons of crapshack subdivisions and future rental/townhome slums have been constructed on land that should have either been left open (green space, farming, etc.), or developed as office and light industry, or restricted to its original land use designation. Massive overbuilding based on blind optimism and the promise that the economy never goes south (2008 be damned, this time it’s different!!!), now has developers worried and ordinary people just looking for affordable shelter, gaining hope as the insane pandemic boom is finally starting to fade.
The city is now filled with two kinds of migrants: first, couples and families fleeing the more high-cost, high crime cities for what used to be a slower, safer, more affordable and more relaxed family-friendly environment, and highly paid remote tech workers seeking the safer and more outdoorsy life. For many, the bonus amenity nobody talks about is the heaping side of virtuous self-righteousness which comes as a reward for colonizing the savage, unwashed local culture with all the “good ideas” the internal migrants moved away from.
Sadly, both the climate and the local natural
environment are both deteriorating. Living here with no air conditioning is no longer possible unless you’re prepared to be miserable for four months of the year. And the hills once covered with lush green sage steppe, are now largely denuded and covered only by cheat grass and other nasty invasives. The greenbelt along the river, once a quiet, peaceful, dry and beautiful recreation area, is now mostly a humid, crowded thoroughfare dominated by high-speed cyclists and overgrown weedy trees and shrubs that choke off the natural area. But, hey, it all still works if you just don’t pay attention and lower your standards, which is A-OK by most people!
Yes, Boise's wonderful natural amenities attracted a tremendous surge in demand, and I think the whole valley is somewhat unique among Western towns for a relatively high elasticity of supply to meet that demand. It took a few years, and I agree that rapid expansion of housing supply is disruptive, and has successfully begun to dent the overwhelming shortage of homes to meet that surge in demand (helped along by a bit of mean reversion as some of that demand sloshes away).
And yes, climate change has also made summers less tolerable without A/C in much of the West, particularly by raising the nighttime lows and humidity, but also by choking the air with much more wildfire smoke than 12 to 30 years ago. In Seattle you used to be able to set your watch by the nighttime cooling: it would drop sharply into the 60s soon after dark, but now it's pretty routine to see temps lingering in the muggy 70s at the same time the wind drops off.
I suspect the driver of improving natural amenities on Brian Potter's post was the warming we've seen in winter, so that bitter cold has gone from routine to rare, while our rising summer dewpoints and warmer summer nights are still much nicer than oppressive muggy summer weather back East, so they're not counting against us too much. But that's just speculation.
Yes, still better than the east coast or Midwest, but it’s getting to be more like trade offs rather than just overall better. For example, to respond to your comment about fire, we now have smoke season, as our answer to flood or hurricane season. That never used to be!
Sadly, people who weren’t here in decades past and who don’t really care, don’t know what they’re missing and will never be able to experience because it’s just gone. But it’s a real loss to those who once knew it. And to the local flora and fauna.
The local surge in housing demand was particularly destructive because it wasn’t organic. It was a toxic and never sustainable brew of suppressed interest rates, Chinese investors fleeing capital controls at home (buying at insane prices on the coasts, and setting those homeowners free to come here to buy); grossly inflated salaries in the tech industry thanks to its own boom, plus tons of “free” money stimmy paired with completely ridiculous forbearance programs and lack of common sense among the public. These things do not an economy make! But don’t you dare try speaking common sense or actual data to anybody. Don’t even bring up the city’s own development laws! Developers, business leaders, realtor groups and city officials would have none of that. They all either lied like hell to themselves, or really were just that butt stupid, and insisted that we “had to” (HAD to!) screw up the city to accommodate everybody who wanted to come here. Because, you know, growth is good and progress can’t be stopped, yadda, yadda.
Well, surprise, surprise! The chickens are beginning to circle overhead, and the officials and business people who all followed the Gordon Gekko model of economics, are beginning to worry. But their plan is to keep going with more of the same! Because no strategy works like doubling down on failing policies. The tide is pulling out yet they’re steaming right ahead with new delusions of grandeur, constructing thousands and thousands of new, increasingly shitty, “affordable” housing units that still aren’t affordable to many.
The motto for many years has been that squeezing a literally infinite number of people into tinier and tinier spaces, will keep housing within reach and “protect the environment.” In reality, it will do neither! It will only allow landlords and investors to keep overcharging for space, while leading to the predictable outcome of bigger and bigger hordes of people loving the local environment to death.
Until the inevitable reversal comes along.
At some point the quiet creaking noises of a local housing market beginning to soften, will lead to the boom of an implosion. And an entirely new set of problems will come along (like, who is going to be able to pay the property taxes required to pay off the massive expansion of the airport, or the “bike skills” part developed as a tax dodge by the Albertsons family, then dumped onto the public tax rolls for upkeep in perpetuity?)
Meanwhile, the number of Blue state colonists and Indian tech workers who are deciding that the local culture and natural environment just isn’t their cup of tea, and who have the means to leave, are beginning to tiptoe out. It’s just a small trickle, yet, but the direction is telling. And they will eventually leave behind a rather hollowed out and lower income city with a host of new problems to tackle. All quite unforseeable, of course, if the leadership and experts are to be believed.
Interesting point. I wonder, though, if Western rural towns and counties are more restrictive than those in other parts of the country.
I was a landscape contractor in CA for 30 years. Up until about 2003 a 6 foot perimeter block wall was typically specified at 12"X12" footing, rebar every 36" (and poured) with a solid beam on the top course. Everything else was hollow. Permits were often unnecessary. In San Clemente, with the city flush with rising property tax values they hired more engineers and more inspectors to enforce the new engineering specs. Now a freestanding wall has to have a permit, a 24"x24" footing, rebar every 16", and all cores filled solid---theyre making freeway walls around gardens!! I understand this is for earthquake proofing but it's way overboard. So that's one cross section of why housing is so expensive in CA anyway.
Another big issue is that the western states have a huge proportion of land in public ownership (usfs and blm mostly) leaving much less land available for private purchase. That’s one of the primary amenities for people who enjoy being active outdoors, but surely impacts the cost of land and housing. The idea being floated of wholesale disposal of public lands is horribly conceived, but small targeted public land sales on the periphery of urban areas can work beautifully, and the Southern Nevada Public Lands Management Act is an excellent example.
Also rural zoning often has very large minimum lot sizes (40 acres is common). It would also be interesting to see if overly prescriptive building codes which sometimes arise at the state level (but effecting rural areas) corresponds with blue vs. red political orientations in the metro areas around state capitals.
That publicly owned land is one of the amenities luring people. We moved to a small town in Washington State to be near Olympic National Park. There's a dearth of public recreation opportunities in much of the country. COVID led to another surge of professionals and better off retirees moving out here. You can see the changes in what the local Safeway stocks. Two decades ago, we spoke to the produce manager who claimed that no one would ever buy radicchio. Needless to say, that is just one of many new things in the produce section.
Interesting piece. I suspect part of what is going on also is a) there are as many or more people living in red eastern counties with the same dynamics, they are just much more densely populated and so don’t pop out on the map (zoom in on Boston, ny, dc etc) and b) this particular metric is skewed by the dynamics of supply restriction, where residents get bifurcated between incumbents who are hedged (rent control or who bought when it was much cheaper) and everyone else who has to pay market prices. The former group will end up with extremely high house value / income on paper (but it doesn’t matter since they are hedged), and market housing prices will be determined solely by the latter group. When you have a metric that mixes these groups together you will end up with a high average house value / income in these areas but i bet if you limit the analysis to the latter group you will see that house price / income makes a lot more sense.
My guess is that depressed areas will be green (too many houses chasing too little demand and poor outlook for houses as a store of value), less supply restricted areas with growing demand will be yellow, and supply restricted places with growing demand will be red (because if the dynamic above).
Great article. It begs the question about supply constraints. One hypothesis is that this is market failure or a function of the rural homebuilding market not being lucrative enough to invite competition. If you add up the population of rural counties, is it big enough in aggregate to invite more homebuilding that would push prices down?
This would probably require new entrants from outside these communities. If I were a homebuilder serving rural communities, it may not pay to build more houses. First, I may have a limited supply of labor. Second, I'd probably not have the financial capacity to build a lot of home and could struggle to raise financing to expand. Third, most smaller business owners aren't very sophisticated when it comes to making long term capital/financing decisions. Even if I could find the labor and the financing, maybe I'd just be really happy that I'm making good money given that selling prices have risen more than my costs.
In other words, could it be that demand is more elastic than supply and that the difference is greater in rural cities than in urban cities. Therefore, changes in demand will lead to bigger and longer-lasting price changes.
I know people in my area who build spec houses, and getting the necessary skilled labor isn't always easy. There are only so many people out here doing drywall, masonry and other skilled trades. There's a lack of human capital. We had a company that made high end leather bags. They wanted to expand but couldn't find or lure leather workers, so they moved. Heck, there's one of those highway traffic warning signs offering a county job as a purchasing agent. You'd think they'd put it with some nicer scenery behind it than the dirt piles for public works.
Some other possible reasons for exceptional prices in the West (in addition to yours, which all sound right/plausible):
- Overflow from the major Western region metros, but without the declining/below-peak-population cities found throughout the rest of the country to pick up the slack
- Relatedly, very high prices in places like California creating literally millions of people with anywhere from $500k-$5 million in home equity, who can then spend that money buying homes in rural areas throughout the region
“the most obvious explanation for higher home prices is simply demand: more people want to live in western states than in other parts of the country, the supply of homes isn’t keeping up, and this is pushing up the price of housing.”
I think you are misusing supply and demand here. Even if demand is higher in the west, supply should be able to keep up given the same input costs unless the elasticity of supply is low. That is, unless it is inherently more expensive to build in the west than everywhere else, the long term supply should adjust so that houses sell for roughly the same price unless expanding production of housing is limited in some way in the west that is not so much elsewhere. So it should be a supply constraint, either because labor or materials is more expensive out west or because expanding production is more difficult out west. Maybe buildable land is scarcer out west, and that is why the supply can’t expand as much, but something is holding back supply.
> Maybe buildable land is scarcer out west, and that is why the supply can’t expand as much, but something is holding back supply.
Ding, ding ding. We have a winner. In the western states much of the land, frequently over 50%, is owned by the federal government is not available to be built on.
Much of it is not feasible developable land either way. Most of the public land nearby population centers which is feasible to develop is BLM land.
Look at Seattle. Over the past two decades, they have built tens of thousands of new apartments and homes, but housing costs have still risen. Why? Seattle is an economic boom town for software development. The seed was the local university providing the kernel of a trained work force. Then the job growth encouraged skilled workers to move here and those skilled workers attracted more employers. It helps that moving to Seattle with its natural amenities and half decent weather is an easy sell for recruiting.
You can see similar effects even on the other side of the Cascades. For example, the Spokane area is booming with new neighborhoods coming together east of the city to the Idaho border. It reminds me of Long Island in the 1960s. A good chunk of it is skills driven as it is in other areas. It isn't all high tech either. There are also skilled jobs in agriculture, especially growing fruit of various kinds. They don't grow apples on trees anymore. They're espaliered like grape vines.
You are looking at Seattle, and expecting that the entire rest of the west on that map is working the same way?
Explaining why metropolitan areas have higher housing prices is unnecessary, as the answers of limited space and inability to build new units generally do the trick. New York and Seattle are both expensive. The problem is explaining why counties in the middle of no where in the west are also so expensive compared to counties in the middle of no where everywhere else in the country.
It's not just Seattle. It's similar on the other side of the Cascades though not quite as intense and from a lower base. Ellensburg is growing, driven by the university there. Spokane is growing east towards the Idaho border. It's hard to miss all the new suburbs on I-90. Once again, the university there is helping drive this. Even in agricultural country, the business is moving up the skill chain since so much of it is grapes, hops and other fruits rather than something highly mechanized like wheat.
There's lots of physical land, but water is an important limit. One realtor has a booklet for newcomers explaining western water rights e.g. just because a stream crosses your property doesn't mean you can take a drink. Skilled labor is a problem, too. I know the companies installing windmills appreciate the community college courses on the technology. I'm not going to say the area is booming, but the population is growing and housing is more expensive than it was.
I don't think prices would ever be equal, because apart from construction costs, land values would be bid up in the west coast.
That was the last sentence in my post. However, while that is true close to the coast, the population density of basically everywhere else on those maps with high prices out west does not quite justify why the land values would be bid up so high, unless something is artificially limiting the amount of land one can build on.
I had more in mind that the west coast scored higher on the natural amenity scale shown in the original post, where there looks like a pretty good overlap between these very high cost areas and places with natural amenities. So my take, in line with the author's, is that these high natural amenities are being priced into the value of the land and it's not just a matter of scarcity of land to build on.
This isn't to say artificial restrictions aren't making the problem even worse than they need to be of course.
I am highly skeptical of natural amenities scores, and how they drive demand. I agree that people like to live in nice places, with nice outdoors areas. I do myself. I remind myself, however, that most people, literally a plurality in the USA, live in cities which are... low on natural amenities. That makes me question how much people are paying high housing premiums to be near nature.
I also actively disbelieve that those amenities scores mean anything rigorous or reliable. How are they calibrated? How are they tested? It is likely just marketing nonsense.
Glad you wrote an article on this after sharing that figure in your Weekly Reading List! This is a question that I have long been confused by. Living in SoCal, I have never understood how a new house in the midwest can be built and sold for less than the cost of a modest renovation to my 75 yr old house. I understand higher labor costs (driven up partly by higher housing costs), but does this also contribute to higher building material costs? You did a great article a few years ago with a cost breakdown of a single family home. Would be interesting to see how that compares in Western States to the rest of the US..
In the graphic "Median Price per Square Foot of New Single Family Homes", it is noted that it excludes land costs. It would be useful to see how much of the difference in home prices is driven by land costs. Certainly here in BC, land costs for lots are quite significant.
Dispatch from the eye of the perfect storm: San Francisco. We check just about every box on the list, in spades.
I would emphasize construction wages - I recently got an estimate for some electrical work on my house by a licensed electrical contractor (non-union) that worked out at an eye-watering $240/hour just for his labor, so if (big if) he works 2,000 hours/year and puts 20% down he might qualify for a mortgage on a very average 3-bedroom home in a modest neighborhood in the city.
Then I compare the heat index (or what Wunderground calls Feels Like) that is 60°F here today vs. 99 in Miami and 100 in Tuscon. On balance, I'm staying put.
That $240 is "fully loaded", that is, it includes overhead like medical benefits, 401k, vacation time, a buffer for slack periods, office and dispatch expenses, the truck and tools among other things. I doubt your electrician is making $480K a year in take home pay.
Property tax rates are also a factor. California and Arizona limit property taxes to approximately 1% of market value. And California proposition 13 strictly limited reassessments. Here in upstate New York, property taxes can be 3-4% of market value and reassessments are regular. While the west has more expensive sale prices, the monthly payments on a mortgage and tax escrow are going to be less dramatic. In any case, the all-in prices are what the market will bear.
And when you look at California, limited property tax had negative impacts on public schools.
I live in Chicago's north suburbs and moved three years ago. We had choices in Cook County (includes Chicago and higher property taxes) and Lake County (slightly lower property taxes). To assess affordability, pulled a sample of transactions from the various towns we were considering moving to and compared everything on a cost per square foot basis, including both the purchase price and the present value of property taxes. The result is that prices were very similar. Higher taxes = lower purchase cost per sq foot. In other words, the market here is pretty efficient. So, the taxes are probably incorporated into the median home values.
Demand in the west has jumped since 2020 when work from home exploded.
These people generally have higher incomes than the natives, driving up prices. If one can live anywhere, natural beauty outsizes other considerations.
Demand in rural Western areas outside the big metros may in part be driven by spillover demand created by the vast shortage of housing in the highest-demand metro areas like the Bay Area and LA. As the article articulates, the Bay Area and LA have uniquely high artificial barriers to housing erected by state and local govs (local zoning, slow permitting, CEQA, fees, etc). Conceivable that people who prefer not to leave the state entirely move to rural inland areas where housing is more affordable
A couple of other factors may be at play: In the West property taxes tend to be lower. Public infrastructure is newer and much of the roads are not exposed to freeze-thaw cycles. In Arizona a large part of public education is funded by State Trust Lands revenue. Climate is another factor; the HDD (Heating Degree Days) and CDD (Cooling Degree Days) tends to favor the SW. The total cost of home ownership equals mortgage cost (home value) + property taxes + insurance + maintenance costs. You can pay off your mortgage, but you cannot pay off your property taxes. This favors regions with lower property taxes.
The states with the most expensive housing are in highly regulated areas. California, Oregon, Washington State.
Anywhere within ten miles of a major urban center will be expensive.
Idaho has some of the least restrictive housing construction regulations in the country, particularly Eastern ID, and they are affected nonetheless.
Is there a miscalculation in the first table? A quick search here: https://www.census.gov/quickfacts/fact/table/US/HSG495223 returns something in the ~$300,000 range, not $211,000 as quoted. Similarly a search for median household income returns ~$80,000 rather than $60,000. Perhaps you're not weighting the average by number of homes in each county which results in the lower values?