Homes in America’s Sunbelt don’t cost as much as they do in the sky-high metropolitan markets of New York and California — but they ultimately will if new housing supply continues to decline.
Research from Wharton real estate professor Joseph Gyourko and Harvard economics professor Edward Glaeser shows the rate of new home construction across the Sunbelt has been dropping steadily over the last 30 years, almost converging with the very low growth rates of coastal cities. The more limited the housing supply becomes in places such as Atlanta, Dallas, Phoenix, and Miami, the more those cities resemble Manhattan, Los Angeles, San Diego, and San Francisco in terms of house prices. The current median home prices in America’s top 10 markets range from $605,000 to almost $1.4 million.
“This is an important change, and why that’s important is where’s the job growth in America? The answer is in those Sunbelt markets,” Gyourko said. “We would make a much wider swath of America unaffordable in terms of housing, so it’s a big deal.”
He spoke to This Week in Business about the findings in his co-authored paper titled, “America’s Housing Supply Problem: The Closing of the Suburban Frontier.” While many scholars have examined the complex variables that are contributing to all-time-high home prices, Gyourko and Glaeser dug a little deeper. They analyzed 50 years’ worth of data to explain why home values keep rising, especially in places that were once considered affordable.
“It’s a longer-run problem than I would have thought before we did the research,” Gyourko said.
“We would make a much wider swath of America unaffordable in terms of housing, so it’s a big deal.”— Joseph Gyourko
The “Golden Age” of Housing Construction
Steep mortgage interest rates, the rising cost of building materials, and the buying frenzy of the COVID-19 pandemic have helped to boost prices in recent years, but the data show the problem really began in the 1970s.
“The 1950s and 1960s were a golden age of new construction, with extremely high rates of housing unit production in any market with growing demand,” the professors wrote in the paper. The national housing stock boomed from 36 million units in 1950 to 50 million by 1980.
However, the growth was uneven. In the 1960s, for example, the housing stock in Phoenix grew by 8% a year while Detroit grew by 2.5% and Los Angeles by 4.1%.
By the 1970s and over the next two decades, the growth rates dropped everywhere, amounting to “barely half of the rates seen” during the golden era of the ’50s and ’60s. The downward trend continued into 2000 and persists today.
Although construction is sluggish across the country, the professors said it’s the decline across the Sunbelt that’s most troublesome. Atlanta, Miami, Dallas, and Phoenix were once prolific in building new homes to meet rising demand as their populations swelled. But the build rate for each of those cities has flattened so much that they are now not much higher than in Los Angeles and Detroit. Since 2020, the new housing supply growth rate in all six cities has been below 1%.
“A feature of the American system is that zoning and permitting is a very local decision.”— Joseph Gyourko
Local Governments’ Role in the Housing Crisis
The professors said there is evidence that contradicts the belief that growth is constrained because desirable cities are “built out.” The culprit, they said, is local governments that have enacted regulations that make it difficult to build.
“What’s happened in the Sunbelt, particularly in suburban areas, is [they] are figuring out how to slow and stop new developments. A feature of the American system is that zoning and permitting is a very local decision,” Gyourko said.
He said if Sunbelt cities continue providing inadequate housing supply, homes there will be as expensive as in coastal cities within 20 years, presuming the demand to live in those markets stays high.
“America once responded to demand by delivering more density, but it does no longer. This suggests that not only is America failing to deliver housing in its most productive metropolitan areas, but we are also failing to deliver housing in our most desirable neighborhoods,” the paper stated.
The professors stopped short of prescribing regulatory remedies in their study. But in his interview, Gyourko mentioned the bipartisan ROAD to Housing Act, which passed the U.S. Senate in early October and is headed toward the House. The legislation is aimed at increasing affordable housing across the country by helping cities streamline permitting, modernize zoning codes, and support housing innovation.
“One way to do it is for the federal government to use its resources to incent localities to permit more. But understand that’s a key distinction. The federal government does not issue building permits,” Gyourko said. “I think the most important thing is change at the local level. There has to be a recognition that these high prices are largely — not totally — due to restrictive permitting and higher regulation at the local level.”
