Houston Gets the Last Laugh

Spoiler alert: Houston is both the most affordable large city and the one with the lowest rate of homelessness.

For many years, Houston was viewed as the poster child for poor planning, due to its lack of zoning and sprawl. While it is true that Houston does not have traditional zoning classifications, it does have land use restrictions. One such restriction is minimum lot size. Up until 1998, Houston had a minimum lot size of 5,000 square feet.  Thus an 8000 square foot lot could have at most 1 home. In 1998, this was reduced to about 1,400 square feet within the city’s I-610 Inner Loop (about the area shown on the map below). Now up to five homes could be built on an 8000 square foot lot. In 2013, the reform was expanded to the rest of the city.

As the map below demonstrates, this led to an explosion of small lot single-family detached and attached homes on small lots.

From 2000-2023, the population of the city of Houston grew by about 20%.

Los Angeles had no such renewal in its core area.

The city of Los Angeles over the period of 2000-2023 grew by about 3.5%.

The result of Houston’s more enlightened land use policies shows up in two other ways:

1. Affordability: The county-level dot chart below for Harris County, TX (Houston) demonstrates two key affordability relationships:

1. As homes per acre increase (X-axis), the estimated market value decreases (Left Y-axis).
2. The dots moving from left to right represent deciles, first of SFD sales, than of SFA sales.
   • In general, the first one-tenth group for SFA picks up about where the last one-tenth group for SFD ends. Market value generally continues to decline as homes/acre increases.
   • The blue horizontal line denotes the median new SFD new construction value as of 2023.  In general, this median is either unaffordable or barely affordable to middle class/working class households (represented by the various colored solid lines).
   • The black horizontal line denotes the median purchase price for homes purchased in 2024 (MPP). In general, only newly constructed SFD with higher number of homes per acre and all SFA homes have values less than or equal to the county’s MPP.
   • By building an abundant supply of SFD on smaller lots and SFA, all middle and working class households would be able to afford some portion of these newly constructed homes.  Of course, even in Harris County, more homes need to be built on smaller lots.
   • This abundant supply of more affordable homes also sets off the filtering down process as these households free up less expensive homes as they move up into these newly constructed homes. Think of how the new and used car market operates.

Compare to Los Angeles County, where middle and working class households are priced out of newly constructed homes, even on small lots.

2. Homelessness: the Good Neighbors Index (GNI): median home price to median income ratio (displacement pressure) is highly correlated to the homelessness count/1000 population (displacement rate).

1. Median home price to median income can explain 78% (89% for CoC >=1 million population) of the variance (R²) in the rate of homelessness among 369 Continuum of Care (CoC ), substantially higher than any of the other 53 market predictors tested and higher than those found by “Market Predictors of Homelessness”, a study commissioned by HUD.
   • At a displacement pressure ratio of 3.0, the expected displacement ratio (ratio of point-in-time homeless count per 1,000 people) is 1.0, but increases to 4.0 at a displacement pressure ratio of 7.0, a factor of 4 times higher.
   • CoCs with greater filtering (lower ratio of last buyer’s real income to prior buyer’s real income) had lower homeless rates.
2. Creating housing abundance through building more homes on smaller lots is the key to reducing housing displacement.
3. This helps to explain why Houston’s homeless displacement rate is about 6% of Los Angeles’.

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