In January of each year the Demographia International Housing Affordability Survey rates the housing affordability of 227 major urban markets in the United States, Canada, the United Kingdom, Republic of Ireland, Australia and New Zealand.
Every year, Houston’s diverse and dynamic urban market consistently rates as “affordable.” To earn an “affordable” rating an urban market must have median housing prices that are less than three times annual household earnings.
Houston’s great strength has been its ability to stop political and commercial elites from capturing control and denying Houstonians the ability to make their own decisions about how and where they wish to live and work. It is indeed “the people’s city.”
This did not happen by accident in Houston, but has been the result of a long tradition of sound governance underpinned by a political culture fostering constructive discussion and debate that consistently enhances competition and opportunity. In fact, Houston is now widely recognized, internationally, as the model “opportunity city.”
Unfortunately, too many urban markets have allowed their political and commercial elites to take control for ideological and commercial protection reasons. Commercial interests are too often motivated to manipulate the political process to shut the competition out — if allowed to.
Sadly, political elites work closely with commercial interests in city after city to redesign and limit cities to only attract the well-to-do. It is an ill-conceived and shortsighted strategy that has costly and destructive consequences on local economies. When enough cities engage in these practices it can even affect the national economy, as we are now seeing in the United States.
This has indeed happened throughout much of the Western world with the extreme case of Los Angeles, Calif., where house prices had been driven up to a stratospheric 11.5 times annual household earnings. Other than the affordable urban markets throughout middle North America, the coastal North American markets and those of the rest of the Western world have mismanaged their urban markets, so that housing reached unsustainable levels three to 11.5 times above annual household earnings.
To prop up these unsustainable values, the finance sector had no option other than to engage in destructive and, indeed, deceptive lending practices to allow property transactions to occur, with the willing support of borrowers generally. Both lenders and borrowers had convinced themselves that the artificially created inflation of these mismanaged urban markets would continue indefinitely, with both being protected by ever rising bubble pricing.
All bubbles eventually burst, as is currently happening in California, Florida, Nevada, New Zealand, the United Kingdom and Republic of Ireland and elsewhere, and the consequences in social and economic terms are devastating.
These dysfunctional urban markets unfortunately can look forward to the prospect of enduring these consequences for the next 10 years or so as fake real estate values are worked out of the system and real values are restored.
As these fake value-based debts are absorbed or written off by financial institutions it seems likely the survivors will be in no hurry to repeat the experience. Urban markets that exceed the affordability threshold of housing being priced at or below three times household earnings will simply not get the financial support to fuel further devastating urban property bubbles.
I was privileged to spend two weeks during May in Houston. The lasting impression I have is the refreshing openness, tolerance, optimism and commitment of the Houstonians I met from all walks of life, characteristics often lacking in other urban markets currently suffering housing stress.
Houstonians need to understand and appreciate the reality that your great city is indeed a global leader with respect to its political culture and urban governance. And, importantly, that this is being increasingly recognized both within the United States and internationally.
Hugh Pavletich of New Zealand is a Fellow with the Urban Development Institute of Australia and co-author of the “Annual Demographia International Housing Affordability Survey.”