Rent control, housing supply, and home values in Seattle and Houston

In my recent op-ed about rent control I point out that Houston, TX  permitted more home and apartment building than Seattle, WA from 2005 to 2014. The graph below shows the magnitude of this difference. The bars are the number of permits each year (the left axis) and the line is the ratio of Zillow’s home value index (numerator) and the average single family home construction cost for each city (denominator). The right axis reports the ratio. (Seattle’s data are here, Houston’s are here, and permit data are here).

houston, seattle permits graph

As seen in the graph, the orange bars (Houston) are much taller than the blue bars (Seattle). Also, Houston’s home value to average cost ratio was relatively flat during the period shown despite the fact that Houston grew by 163,000 people during this time period. This is because Houston’s high level of building kept pace with demand. During this 10 year period Houston’s home values were roughly 1.6 times average construction cost.

In Seattle, where less building occurred, home values reached nearly 2.5 times average construction costs in 2007 before falling to approximately 1.8 in 2009 due to the housing bust. Home values decreased even further from there, reaching their low point in 2012. Since 2012, however, they have been increasing while in Houston it appears the ratio has leveled off. The difference between the two ratios is not driven by relative cost changes either. The graph below shows the cost per unit in each city over this time period. They are fairly similar in dollar amounts and the ratio between them was relatively constant during this time period.

houston, seattle cost per unit

Seattle’s building restrictions are contributing to the high price of housing in that city. And because prices in Seattle are primarily driven by demand, home values are much more volatile: When demand increases they rise and when demand falls, like from 2007 – 09, they decline quickly.

For more information about the negative consequences of rent control, see here and here.

5 thoughts on “Rent control, housing supply, and home values in Seattle and Houston

  1. Jake Wegmann

    Of course Houston permitted more housing than Seattle–it has 3.5 times the population!

    1. Adam

      Permits for new units have more to do with the level of demand i.e. people who want to move to the city and building restrictions rather than the starting population level. Manhattan had approx. 1.6 million people in 2014 (nearly 3 times the population of Seattle) and only issued 77 total permits.

  2. The Overhead Wire

    Houston is one of the largest cities in the country by landmass and can still annex and build on vacant land. Seattle is land locked. I would like to see more normalized data on this issue.

    1. Adam

      True but Seattle can build up: Manhattan houses 1.6 million people on 34 square miles while Seattle has 650K people on 143 square miles. Building up is more expensive but my hunch is that people would pay.

      1. The Overhead Wire

        They can build up but there is much more political pushback over that as we’ve seen the last few days than people in Houston pushing back against new land development. Manhattan has had the benefit of already being at a higher density, Seattle is 65% single family homes, each of the owners voters with very strong feelings about growth.

        Vacant land in Houston doesn’t have strong feelings. Though maybe it should. I don’t disagree that Seattle could fix its problem by building more housing. But that’s a whole different thing than convincing entrenched interests that it’s “good” for them.

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