Unaffordable Florida Housing Markets
Housing affordabilty has deteriorated remarkably since 1999 both in Charlotte County and all over Southwest Florida.
Florida's housing price explosion may have less to do with heavy demand than with restrictive land-use regulations that have retarded new development.
And Charlotte County -- applying a familiar Mark Twain quote about human cowardice -- is "not only marching in that procession but carrying a banner."
The cost of a single-family home in the Punta Gorda metropolitan statistical area has doubled relative to family income in just the last six years, according to a recent study by the American Dream Coalition, an Oregon-based think tank that promotes home ownership and free market principles. The metropolitan statistical area includes all of Charlotte County.
The study defines an "affordable" house as one that's priced at roughly twice the median annual family income in a metro area, based on U.S. census figures. At the outside, this ratio of home price to family dollars should be no more than about 2.7 to 1. Anything above this more than likely represents waste caused by artificial curbs on supply.
Despite media reports of a nationwide housing affordability crisis, many of the nation's greatest cities remain affordable, as ranked by the price-to-income ratio. Atlanta, Houston and Indianapolis are good examples.
At the other extreme, there's San Francisco, where a typical home costs nearly 12 times annual family income.
Census data going back to the 1950s shows that, nationally, families tended to buy houses that cost a little more than two full years of income. A family devoting 25 percent of its income to mortgage payments should be able to own such a dwelling in no more than 20 years.
By this measurement, housing in Charlotte County was solidly affordable as recently as 1999, with a 2.06 ratio of home price to family income, the study reported. Indeed, the area beat the national ratio of 2.24.
But by last year, the median home price had risen to nearly four times median family income -- a ratio of 3.92.
Using the national 2.24 price-to-income ratio in 1999 as a baseline, the study estimates that houses in this area are 43 percent overpriced. A ratio of 2.24 is 57 percent of 3.92 -- the difference represents a 43 percent price rise over six years that hasn't been offset by any increase in the median income of Charlotte County residents.
Some of the area's price boom can be attributed to post-Hurricane Charley scarcity of product. Also, more money has been flowing into Southwest Florida because it's still an attractive alternative to costlier cities. That factor tends to bid up the price of the existing housing stock.
But nearly every other metro area in the state has experienced a similar price breakout, save a few smaller communities like Pensacola and Lakeland. Home prices in nearby Naples, Fort Myers and Sarasota -- none of which suffered extreme hurricane damage -- have all nearly doubled since 1999.
Even Naples was somewhat affordable as recently as 1999, at least when one considers its preponderance of high-income residents. Its 1999 price-to-income ratio was 2.72; today it's 5.46, making it an almost impossible market for working people.
Fort Myers deteriorated from a ratio of 2.08 to 3.89; Sarasota from 2.15 to 4.03.
Home prices rose roughly 11 or 12 percent annually in all four Southwest Florida metro areas between 1999 and 2005. By comparison, Atlanta home prices rose 3.2 percent, and Houston 2.9 percent a year over the same time.
The allure of life in paradise just can't explain these numbers, concludes economist Randal O'Toole in a report titled "The Planning Penalty: How Smart Growth Makes Housing Unaffordable."
Rather, he attributes most of Florida's rising home prices to the Growth Management Act of 1985, which required cities and counties to write comprehensive land-use plans. He views the rise in housing prices that began in the 1990s as a result of these plans.
Florida, once renowned as an inexpensive place to raise a family or enjoy retirement, is in imminent danger of following California and the Northeast toward "a dangerous precipice," O'Toole wrote.
If Florida "continues on its present course, it will suffer such high housing costs that only the very rich will be able to afford the American dream of homeownership. Only if it quickly changes course will it remain a state whose housing is affordable for people of all income levels," O'Toole wrote.
O'Toole quantifies his argument by computing a "planning penalty" for each metropolitan statistical area in the nation. This represents the extra cost to homebuyers created by a cluster of restrictive planning practices termed "smart growth" by advocates. For the Punta Gorda area, O'Toole estimates that the cost of regulation adds about $60,000 to the median price of a house.
The basic intent of "smart growth" is to curb suburban sprawl by using the planning and zoning process to restrict development. "Smart growth" tends to support greater population density, along with mixed commercial and residential uses within neighborhoods and generally less reliance on the automobile.
"Smart growth" policies include:
* Impact fees on new construction, based on the assumption that new residents create additional governmental costs, which they should pay for.
* Urban growth boundaries, or other restrictions on the amount of land available for development.
* Municipal green space purchases, which have the same effect.
* Drawn-out permitting processes, including excessive opportunities for public comments and appeals.
* Historic preservation ordinances.
* Tree ordinances.
* Design codes that force developers to use higher-cost construction methods.
Even measures that are supposedly intended to promote housing afforability might have the opposite effect. For example, O'Toole criticizes the practice of "inclusionary zoning," which requires a developer to construct subsidized low-cost housing as a condition of getting permits for a larger project. This, he contends, will simply have the effect of driving up the cost of the remaining units.
Who'll watch the developers?
That's not to say there aren't benefits when the goverment requires developers to make a plan for a community and stick to it.
"If you create a nice community, people may be willing to pay more to live there," said Charlotte County Commissioner Adam Cummings.
"The free market works best when the money is there when you start," he said.
In an ideal world, municipal governments would be able to issue permits with confidence that developers had the financial resources to complete their projects and not impose any external costs on the community.
Cummings offered this example: A new area is opened for low-density residential development. All goes well for a time, until septic systems begin backing up and creating pollution. Then the locality has to go back into the area and build sewers, at great expense. Effective planning is intended to keep such miscalculations from happening.
One local project that will be affected by inclusionary zoning will be Murdock Village. The Charlotte County Commission awarded the deal to Stock Development of Naples.
Brian Stock, chief executive officer of the development company, said he's not fazed by the escalating cost of development in Charlotte County. Likewise, Murdock Village offers some advantages in that it's already zoned and the county already has its own ideas on how it should be developed.
Although it will still take several weeks to work out a development agreement, Stock said that everything that's been done so far should actually make building an easier and cheaper proposition for his firm -- at least compared to having to acquire raw agricultural land that has to be rezoned. He noted that any development plan will have to include housing at a wider range of price points than his company has developed in the past. Stock is mainly noted for its luxury communities in Naples and Fort Myers.
Maryann Mize, vice president of Charlotte State Bank and former president of the Charlotte County Chamber of Commerce, suggests that communities need to be selective about their planning practices.
The perfect recipe for managing growth doesn't exist due to the unknown variables in a particular community.