Red States Are Losing Their Housing Edge

The leading reason people have left blue states in recent decades is the high cost of living—driven above all by housing. For most families, housing is the largest expense, and lower home prices have been a key factor drawing them to red states.

But troubling signs suggest that red states are losing their housing-cost advantage and are no longer building at the pace they once did. If red states and Sunbelt cities don’t address their growing housing challenges, they could follow the path of places like Los Angeles and Boston, where rising prices have pushed more and more people out of the market.

A recent paper by urban economists Edward Glaeser and Joseph Gyourko reveals that housing costs are rising across the country. And it helps identify the problems many once rapidly growing places now face.

One of the clearest measures of housing affordability is the price-to-income ratio—the cost of a typical home relative to a typical household’s income. Historically, homes priced at two to three times annual income were the norm, with coastal metro areas being the main exceptions. In 2000, even fast-growing cities like Phoenix had a price-to-income ratio below 2.5. Today, Phoenix’s ratio is well over four.

One challenge for cities like Phoenix is that the expense of new construction—from lumber to labor—has gone up in both red and blue states. Nationally, the cost per square foot to build has climbed by about a third, even after adjusting for inflation. Glaeser and Gyourko estimate that higher construction costs account for roughly half of the recent nationwide increase in housing prices.

Increasing regulations are the main cause of construction-cost hikes. Building-code mandates keep expanding, especially for energy efficiency. Local zoning codes create a feedback loop that drive construction costs up further. A recent study found that stricter zoning regulations make it tough for builders to grow and achieve economies of scale. High housing prices from overly restrictive zoning also push up the price of construction labor, which drives up construction costs, which drives up housing prices, and so on.

Regulations are the main factor behind the most decisive cause of America’s surging housing prices: the overall slowdown in building. The United States built 19 million new housing units in the 1970s. In the 2010s, the study reports, we added fewer than 8.5 million. The formerly booming cities of the Sunbelt saw the steepest decline in new construction.

One of the most concerning trends in red states is the slowdown in suburban development. In earlier decades, cities like Nashville and Houston grew primarily by expanding outward. In Phoenix, for example, areas more than ten miles from the city center more than doubled in density during the 1980s, even as the urban core saw little change.

But Glaeser and Gyourko show that even in outlying areas of cities, construction has slowed sharply. In Phoenix during the 2010s, neighborhoods more than ten miles from the city center saw density increase by only about 10 percent. As they observe, the “suburban frontier seems to be closing.”

One encouraging sign for these cities is the growth in construction near downtown. In Phoenix during the 2010s, areas close to the urban core densified more rapidly than those more than ten miles out. The problem, however, is that cities’ outer areas offer far more space to build than their downtowns. As a recent analysis by Issi Romem showed, in recent decades, more than 80 percent of new housing nationwide has been built in low-density areas—most often in the suburbs. Nowhere has the recent uptick in close-in construction made up for the slowdown in growth at the urban fringes.

In the past, red states could rely on a local population invested in growth and willing to let the free market respond to housing demand. Today, builders face rising construction costs, stronger local opposition, more regulations, and politicians increasingly hesitant to expand infrastructure. Unless red states and their cities recognize this shift and push back against the growing tide of anti-growth regulation, they risk forfeiting their greatest competitive advantage.

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