The Economist has published a thought-provoking piece that raises the possibility of a decline in the housing affordability advantage traditionally enjoyed by red states:
But what if the affordable housing edge of red states begins to diminish? Evidence suggests this may already be underway: a study by Edward Glaeser from Harvard University and Joseph Gyourko from the University of Pennsylvania, released in May, indicates that new home construction in major Sunbelt cities like Atlanta, Dallas, Miami, and Phoenix has significantly slowed, resulting in rising prices. Furthermore, on June 30th, Governor Newsom enacted reforms aimed at making it more difficult for NIMBYs (Not In My Backyard) to stifle new housing projects in California, which could eventually lead to a reduction in living costs there.
However, we must tread carefully when forecasting outcomes in this arena. In prior analyses, I’ve posited that merely reducing regulatory barriers to homebuilding might not substantially enhance construction viability, especially if numerous other obstacles persist. Therefore, I remain skeptical about California’s capability to effectively resolve its housing crisis. Nevertheless, contemplating the potential ramifications of this shift is worthwhile:
If the house-price advantage held by red states were to significantly lessen, the ramifications would be profound. The most vibrant cities in blue states boast high wages, and as Mr. Armlovich puts it, California offers “weather akin to the Garden of Eden.” If these locales were to simplify the building process, it’s conceivable that the trend of migration from blue to red states could reverse, he suggests. . . .
Such a transformation would also undermine a potent Republican narrative, as noted by Mr. Glock: the idea that people migrate to red states because they are better governed and more livable.
Some politicians in red states are starting to recognize this emerging threat. Recently, Texas enacted several YIMBY (Yes In My Backyard) reforms, which include easing home construction in commercial zones, removing size restrictions on lots, and diminishing what Texans refer to as the “tyrants’ veto” that allows neighbors to obstruct new developments.
In earlier discussions, I’ve explored the dynamics of tax competition among states. This competition intensified following the cap on the SALT (State and Local Tax) deduction at $10,000. However, Congress has now raised this limit to $40,000, which will significantly dampen tax competition across state lines.
Looking ahead, housing policy may emerge as the primary battleground in attracting new residents, particularly as immigration laws tighten and declining birthrates stall or even reverse America’s population growth. Despite its high taxes and stringent regulations, California’s exorbitant housing prices indicate a persistent demand to reside there. This could pave the way for substantial population influx if building regulations were further relaxed.
Interestingly, Texas is not sitting idly by to see if California’s YIMBY policies yield success; instead, it is proactively addressing its own burgeoning NIMBY challenges.
