You may not have heard this good news about the Indiana economy: The state has avoided as a whole the mistakes that result in local housing bubbles. And this, among other reasons, is why Indiana remains a relatively good place to live.
This was not intentional, alas, as will be explained, but it nonetheless gives us an advantage.
Wendell Cox, a public-policy consultant who writes on this topic for The Indiana Policy Review, describes the situation in a recent Wall Street Journal article. He argues that Florida has done things wrong while Texas (and by accident Indiana) has done them right — that is, keep local real-estate markets free of the so-called “Smart Growth” plans.
Those of us condemned to cover planning-and-zoning meetings know that Smart Growth has been a green fad for decades. To preserve urban as opposed to suburban aesthetics, not to mention saving the planet, it calls for restrictive land-use policies to limit municipal expansion, prohibiting new housing except in small sections of already dense metropolitan areas. The promise is a more perfect and sustainable city. The reality is a dearth of affordable housing.
Cox confirms what common sense could only suspect, that the municipal planning-and-zoning crowd was ignoring the ruinous costs of its high-minded vision, that being the disruption of the competitive market for land in a community and the driving of prices up for hapless citizens 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,” notes Cox. “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.”
Thus from 1995 to 2006 the median house price in Florida relative to median household income in its four largest metro areas rose 93 percent to a multiple of 5.2, compared with the national postwar norm of 3.0. By contrast, in Texas, which rejected Smart Growth, the median multiple rose only 32 percent over the same period to 3.2.
And a report by the Kelley School of Business found that, even as the price-to-income ratio in Florida more or less doubled between 2000 and 2005, Indiana’s ratio held steady, rising just two-tenths of a percentage point between 2000 and 2005. That is a smaller increase than all but four states.
“Indiana and Michigan had the nation’s lowest price-to-income ratios in 2010 while Ohio’s was the fourth-lowest, suggesting that this region offers some of the most affordable housing in the country,” the report concluded.
Never heard any of this? Well, that’s because most municipal planners and zoners here are still determined to “pull us into the 21st century,” as they might say. Their position almost to the man being that progress, recession or not, requires more Smart Growth, more prohibitive zoning, more restrictions on the use and sale of private property.
Our good fortune is that with the exception of always-progressive Bloomington and want-to-be-progressive Fort Wayne, Smart Growth hasn’t really taken hold with Hoosiers, a determinedly not progressive, even recalcitrant, lot.
When everyone is heading in the wrong direction, you see, it pays to be a bit slow — even not smart — if you want your local economy to grow.
Craig Ladwig is editor of the quarterly Indiana Policy Review.