Wendell Cox, Wall Street Journal, October 18, 2013
From the mid-20th century on, sunny, prosperous Florida epitomized the growing American state. Its decline and fall in 2007 and its current resurgence owe a lot to how the state embraced, and later broke up with, deceptively named “smart growth” laws.
In 1950, Florida had only three million residents, ranking 20th in population in the country. By the mid-2000s, it boasted about 19 million residents and had moved up to fourth, behind only California, Texas and New York. Recent years, though, have seen this upward arc broken.
Florida was hard hit when its housing bubble burst in 2007—ahead of the national meltdown that triggered the financial crisis and subsequent recession. When the state’s economy imploded in 2008 and 2009 (unemployment eventually rose as high as 11.7%), Florida, long a haven of opportunity, became a less attractive place to stay in or to move to. The state’s six-decade run of positive annual net domestic migration (that is, more people arriving in the state than leaving it) came to an end.
Florida’s restrictive land-use policies helped inflate its property bubble to massive size, making its bursting all the more economically painful. Such growth policies—better known as “smart growth” or “urban containment”—limit urban expansion, prohibiting new housing except in small sections of already dense metropolitan areas.
As Brookings Institution economist Anthony Downs argues, these policies can destroy the competitive supply of land, driving land prices up (other things being equal) as demand rises sharply in relation to supply. These higher prices get passed along to prospective homeowners in higher housing costs—often made even pricier by various other regulations and fees.
The rapidly escalating house prices, in turn, create the potential for extraordinary profits for speculators—or property “flippers.” Jumping into the real-estate market in considerable numbers, they increase the excess of demand over supply, driving prices higher still, until a bubble begins to expand.
It’s no surprise that markets with more restrictive land-use policies have much greater housing-price volatility, as research by economists Edward Glaeser and Joseph Gyourko has shown. A U.S. Financial Crisis Inquiry Commission minority report cited restrictive land-use policies as a main driver of America’s housing bubble.
Almost nowhere else in the U.S. did housing prices get more out of whack than in Florida. From 1995 to the bubble’s largest expansion by 2006, the median house price relative to median household income in Florida’s four largest metro areas—Miami, Tampa-St. Petersburg, Orlando and Jacksonville—rose a staggering 93%, to a multiple of 5.2, way above the national postwar norm of 3.0. Only in California, another state with extensive smart-growth policies, did the multiple rise more, at 116%, reaching 8.7. In fact, restrictions have become even more severe in California, and the state’s median multiple remains higher than it was before the housing bust.
By contrast, in Texas, which has avoided urban containment, the median multiple rose only 32% over the same period, to 3.2. Similar, more modest, increases were typical in other lightly regulated areas of the country.
Thankfully, Florida is recovering its vitality. People have started arriving again, with the Sunshine State gaining a net 100,000 residents from other states in 2011 and nearly equaling that total last year. Only Texas has done better over the past two years.
An improving economy has helped. Florida’s unemployment rate has fallen to 7.1%, and statewide employment is getting closer to prerecession levels. The larger metropolitan areas have done the best: Orlando has recovered 72% of its lost-job count, Tampa-St. Petersburg 68%, Jacksonville 64% and Miami 55%.
Smaller metropolitan areas, such as Cape Coral, Daytona Beach, Lakeland and Sarasota, have not fared as well, and other areas of the state have done worse. But Florida’s major metropolitan areas—key to economic prosperity, as Mr. Glaeser and other economists have argued—have generally prospered over the past decade, the recession notwithstanding, and that’s a good sign.
Business is bullish again, too. This year, Chief Executive magazine rated Florida as the second-best state in which to do business, trailing only Texas, and the fifth-best living environment. The state’s per capita debt level, 28th-highest in the country, isn’t stellar but is still 13% below the national average—and better than that of 38th-ranked Texas. Cheaper homes have also helped draw residents back. The housing bust lowered Florida’s median multiple by nearly 40% between 2007 and 2011, bringing it below the national average.
More important, the state repealed its smart-growth law in 2011, giving local authorities the discretion to allow housing construction sufficient to meet supply. That should keep housing costs in line as the economy continues to improve, preventing the formation of a new bubble. With these encouraging signs, and having weathered the worst of the recession, the Sunshine State may be on its way to a prosperous new era.