Federalism and Housing Policy

The Economist has an interesting article speculating that the red state advantage in housing affordability may be about to shrink:

But what if red states’ cheap-housing advantage were to start shrinking? That may already be happening in places: a study by Edward Glaeser of Harvard University and Joseph Gyourko of the University of Pennsylvania published in May found that new homebuilding in big sunbelt metro areas such as Atlanta, Dallas, Miami and Phoenix has dramatically slowed, leading to higher prices. And on June 30th Mr Newsom signed a reform to make it harder for NIMBYs to block new housing in California, which could eventually make living there more affordable.

We need to be cautious in making prediction on this issue. In previous posts, I’ve argued that reducing the number of regulations that prevent home building may not actually make new construction much more feasible, especially if many regulatory barriers remain in place. Thus, I’m not at all convinced that California has effectively addressed its housing problems. Nonetheless, it’s worth thinking about the implications of this possible shift:

If the red-state house-price advantage were to shrink a lot, the consequences would be widely felt. The most dynamic cities in blue states have very high wages, and California has weather “like the Garden of Eden”, says Mr Armlovich. If such places actually made it easy to build, the exodus from blue states to red could reverse, he reckons. . . .

Such a shift would also undercut a potent Republican talking point, argues Mr Glock: that people vote with their feet and flock to red states because they are better governed and more liveable.

Some red-state politicians are waking up to the threat. Texas recently passed several YIMBY reforms: making it easier to build homes in commercial areas, lifting restrictions on lot sizes and weakening what Texans call the “tyrants’ veto” that lets neighbours block new construction.

In previous posts I’ve discussed tax competition between states. This competition intensified after the SALT deduction was limited to $10,000. Congress recently increased the SALT limit back up to $40,000, however, which will significantly reduce tax competition between states.

In the future, housing policy may become the number one factor in competition for new residents, especially as immigration restrictions and sharply lower birthrates slow or even end the growth of America’s population. Despite high taxes and burdensome regulations, California has extremely high housing prices. This suggests that there is still a strong demand to live here, which could lead to a large population inflow if regulations on building were further liberalized.

It is interesting to see that Texas is not waiting around to see if California’s YIMBY policies will succeed and instead is proactively trying to reduce its own incipient NIMBY problem.