When it comes to Texas, the old saying is that everything is bigger in the Lone Star state. Apparently, there is at least one exception and that is the recent and unlamented real estate bubble that is rocking states from Florida to California. Somehow, Texas managed to avoid the huge upswing in prices. There is an interesting theory as to why this happened, but first take a look at this chart:
Source: Carpe Diem
The blue line shows that Texas real estate has been very steady for many years. The only blips were back in the early 1980s when Texas real estate got hammered after the oil business cratered. Just eyeballing the chart, real estate values in Texas have done a bit better than a double over thirty years. The annual growth rate is probably just under 3% or so. Now, real estate prices in Nevada met up (on the way down) with Texas which is still going up. Real estate values in the states in the chart tracked pretty closely until 2000 or so. The growth rate in Texas stayed constant while the other states took off.
This piece from New Geography does an excellent job of explaining how well things have gone in Texas during the economic downturn. Real estate has not crashed and the economy is doing well too. Plus, there are no state income taxes. Could there be a connection [emphasis added]?
How Texas Avoided the Great Recession (newgeography.com, July 20, 2010, Wendell Cox)
...Texas Largely Avoided the Great Recession. Texas has largely escaped the economic distress experienced around the nation, and especially that of its principal competitors, California and Florida. By virtually all measures, Texas has performed better in growth of gross domestic product, employment, unemployment, personal income, state tax collections, and consumer spending. This is in part due to much less mortgage distress in Texas. At the bottom of the economic trough, the Brookings Institution Metropolitan Monitor ranked the performance of the 6 largest Texas metropolitan areas among the top 10 in the nation. The latest Metropolitan Monitor ranked each of the 6 metropolitan areas in the highest performance category.
Throughout the past decade, Texas has experienced far smaller house price increases than in California, Florida and many other states. During the bubble, California house prices increased at a rate 16 times those of Texas, while Florida house prices increased 7 times those of Texas. As a result, after the bubble burst, subsequent house price declines were far less severe or even non-existent in Texas. Texas had experienced its own housing bubble in the 1980s, however even then overall prices did not exceed the Median Multiple of 3.0 (The Median Multiple is the median house price divided by the median household income).
Unlike Texas, all of the markets with steep house price escalation had more restrictive land use regulations. This association between more restrictive use regulation and higher house prices has been noted by a wide range economists, from left-leaning Nobel Laureate Paul Krugman to the conservative Hoover Institution’s Thomas Sowell. It is even conceded in The Costs of Sprawl —2000, the leading academic advocacy piece on more restrictive land use controls, which indicates the potential for higher house or land prices in 7 of its 10 recommended strategies…
This is an interesting argument that land use restrictions led to scarcity of buildable land, which in turn led to higher prices and a bubble. It is probably a stretch that this single factor was largely responsible for the bubble, but it certainly could have played an important role.
In any case, it is hard to argue with the success in Texas over the past few decades.
Hat tip: Carpe Diem