Today, it’s 242 cities.
A starter home runs seven figures in three times as many places today as it did before the pandemic. Zillow published the count recently. Half the states now have at least one million-dollar starter home city. California alone, unsurprisingly, has more than one hundred.
In the studies, a “starter home” is just the bottom third of houses in an area. What that means is the first rung, the small house on a small lot or shared small lot, where you have your first kid, build equity, and learn what owning a house is like, is becoming unachievable in the majority of places where people live.
What it means is that stability and the sense of adulthood for an entire generation or two are being taken away.
Three things drove prices up this fast, and the texture of the story tells us a lot about how to prioritize our blame. All of them will be recognizable to readers at the Libertarian Institute, though I suspect libertarians generally emphasize monetary policy and increased demands from migration. I think these accounts are incomplete without the third reason: land-use regulations that restrict supply, especially in starter homes and rentals.
Start with the money. Readers know that since 2001, the Federal Reserve has driven rates to the floor and conjured trillions of new dollars into existence, especially dramatically during the pandemic. Mortgage rates fell below 3%. So of course, if you halve the cost of borrowing, every buyer can go deeper into their pockets. That inflated prices from Miami to Missoula.
Then came the in-state migration patterns and international immigration. The pandemic cut work loose from the office, and COVID lockdowns created a giant push, so Americans went looking. Leaving costly coastal metros and moving into the Rocky Mountain and Sun Belt states. My hometown of Bozeman, Montana, watched as high-equity Californians, Oregonians, and Coloradans showed up with cash offers, and a market built around ranch hands and grad students never stood a chance. Cities taking in huge waves of international immigration felt the same squeeze and, under the Biden administration’s lax border enforcement, faced tremendous demand pressure, especially in the rental market.
But my case for you today is to look at the third cause, and it’s an interesting story in Texas.
Texas saw cheap money, with tremendous leveraged tech investment and land purchases. Tens of billions in Paycheck Protection Program (PPP) loans, three rounds of stimulus, and a large delegation to DC that made sure plenty of federal dollars rolled in on top of robust federal finances, and regular Fed money printing. And then Texas also absorbed more population growth than any state in the country: the largest interstate inflow, totaling several hundred thousand from California alone, plus the second largest immigrant population in America, both legal and illegal.
And yet a starter home in Houston or Dallas is still among the most affordable in-demand major metros in the country. Still, given wages, these areas have starter homes that are often within the price range a working family can actually afford.
Yes, Austin indeed got expensive fast, just like Denver, Bozeman, and others, but then it did the instructive thing: it reformed its by-right building rules and became much more permissive about building. And it appears to be paying off.
But Houston makes it clearer. Famously, Houston never had zoning, and it has had some of the lowest minimum lot sizes in the country since the early 2000s. So a builder can put up a starter home by right far more so than its competitor cities. Houston took in the same flood of money and migration, and it’s still one of the most affordable big metros in America.
There’s a libertarian white-pill in that. The Fed is powerful, but not more powerful than free people who keep building.
For most of the history of the English-speaking world, a man who owned land could build on it with minimal government permission. Property rights meant the right to use what you owned. The common law asked one question before it stopped you: Are you harming your neighbor? If not, no legal recourse.
We’ve spent the last century replacing that simple question with a new one: Have you asked permission? Murray Rothbard’s The Progressive Era documents this well. When America swapped rough laissez-faire for centralized statism, he blamed a coalition: big business chasing cartels and a new class of planners in the European mold. In his words, “anxious for power and lucrative employment at the hands of the State.” And planners needed something to plan.
In 1916, New York City wrote the first comprehensive zoning code in America. Soon after, Progressive Republican Herbert Hoover’s Commerce Department mailed model zoning laws to the states and urged their adoption. In 1926, the Supreme Court blessed land-use planning in Euclid v. Ambler. Basically, saying that a town could dictate what you may build on land you own if they call it the police power, if it’s not “clearly arbitrary and unreasonable,” and it has “a substantial relation to public health, safety, morals, or general welfare.” If you think this “test” is highly subjective and likely to be abused, your suspicions are correct. President Franklin Roosevelt’s New Deal drew the redlining maps you’ve heard about and had the FHA refuse to insure mortgages for neighborhoods it didn’t like. Then, to complete the transition, because some localities had not yet zoned or drafted many rules, President Lyndon Johnson’s Great Society massively expanded payments to localities, provided they implement “comprehensive planning” regimes. Within a few decades, the right to build had become a rare privilege that the government grants to us rather than a human right.
Make building hard, and a home stops being something a working family can afford. In the 1960s, a typical house would cost about twice a year’s household income. Today it’s closer to five times, and far more in the locked-up coastal metros. The math just broke and broke hardest on the youngest. The share of buyers getting their first home just fell to 21%, the lowest ever recorded. The typical first-time homebuyer is now 40; a generation ago, he was in his late 20s. The ones who can’t buy are stuck renting, with half of America’s renters now paying more than 30% of their monthly income to their landlords. In the 60s, only about 20% of the American renters suffered that fate.
That’s the bill for a century of land-use central planning.
As zoning, building codes, review boards, and impact fees piled up, entire segments of the housing market disappeared; the net effect was the ban on the starter home.
Try building a 1950s Levittown starter-home development today. You can’t. The lot is too small for the typical American community, well below the 10,000-square-foot median minimum. The setbacks are all wrong, and there isn’t enough parking. The ban went well beyond the Levittown single-family detached home; the same laws measurably killed townhomes, condos, and mid-sized apartments. Freddie Mac put homes under 1,400 square feet, the OG starter home, at about 40% of new construction in 1980. By 2019, it was 7%.
