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Non-zoning in Houston helps housing weather storm

Samuel Staley
August 27, 2008, 3:47pm

As cities across the nation reel from the steepest housing market decline since the 1930s, Houston's real estate market is surprisingly strong. While new housing sales have fallen dramatically, they haven't fallen as far or as steeply as in other cities across Texas or the nation. At least part of this resilience is due to the market-driven nature of the city's land development process, including a real-estate market unencumbered by zoning. More than 2 million people live within the city's borders while another four million round out the metropolitan area. Houston may well emerge as the archtype city of the 21st century. Urbanist Joel Kotkin used the term "Opportunity Urbanism" to describe the city in a study for the Greater Houston Partnership, pointing out that Houston's entrepreneurial drive, affordability, tolerance for diversity, and willingness to adapt to changing economic circumstance may well propel it to become the next U.S. megacity. Underappreciated in the city's success may be its uniquely flexible and adaptable approach to land-use regulation. Unlike every other major city in the US, Houston has shunned zoning regulation, preferring to leave choices about land uses up to the real estate market. The benefits of this market-based approach are most apparent immediately adjacent to and inside the "Loop" (the I-610 beltway, a ring road about 10 miles from the city center). Redevelopment occurs at a rapid pace inside the Loop, creating a mix of land uses rare in most U.S. cities, where aggressive zoning segregates and highly regulates land uses. High-rise apartment buildings and commercial towers emerge on redeveloped property quickly, and notices of higher density and mixed-use redevelopment dot parcels of land throughout the inner-loop area. Despite the lack of municipal zoning, land development is not completely unregulated. Houston has adopted several statutes to set standards for infrastructure, parking, building setbacks, and building location. More importantly, in many parts of the city, private deed restrictions that limit future land uses run with the land, not the property owner. Nevertheless, substantial amounts of land are unrestricted by private deed, and property owners aggressively promote the flexibility and economic opportunity resulting by the lack of regulation. Such dynamism in the housing market has created uneasiness among some neighborhood groups, and political tensions have risen. Recently, a grassroots flare-up over the proposed redevelopment of an older apartment complex into a 23-story residential tower triggered neighborhood protests that threatened to undermine the market-driven nature of development. In addition, a city council member is currently running for mayor using a "Smart Growth" banner that would inevitably lead to a more regulated development environment. As a result, local housing and real-estate developer have organized to raise public awareness of the dangers of adopting conventional planning rules, founding Houstonians for Responsible Growth. If these changes result in less flexibility in the real-estate market, Houston residents may suffer in the long run. The market-driven nature of the city's land market means that the housing sector is likely to rebound faster than in other cities facing traditional regulation through zoning. "The resulting correction," economists at the Houston Branch of the Federal Reserve Bank of Dallas write in a 2008 report, "takes place in the context of prices that are squarely in line with local construction costs and without the painful supply-induced downturn underway in many other markets." They point out that even some academic research suggests that Houston homes on more regulated neighbourhoods tend to be less affordable than those in other zoned cities or even in deed-restricted neighbourhoods within the city. "In summary, Houston's low-and-slow home prices have made real estate a relatively accessible and safe investment for the area's residents even as other cities' markets have become expensive and volatile. The early phases of the current housing downturn–the boom and bust in prices–were barely felt in Houston." Houston has felt some pain, but the regional began to feel the pinch in its housing market when credit dried up as the subprime mortgage crisis narrowed mortgage availability throughout the economy. Houston's permissive approach to land development, combined with benefits of a strong global commodity market, has helped the city avoid the peaks and valleys of the housing market evident in other U.S. cities, where regulation delays supply-side adjustments to rising demand and magnifies the effects once the bubble bursts.

Samuel Staley is Research Fellow


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