Wyoming loves to pick on California for its many perceived (or real) flaws, but there’s something the Cowboy State has in common with the Golden State of late, and it’s not a good thing.
That something is what a Harvard economist calls an “inelastic," or rigid, housing market.
The similarity between California and Wyoming’s housing market was glaringly apparent on a map created by Harvard Growth Lab economist Eric Protzer, which he shared at a recent meeting with Albany County community leaders who are grappling with unaffordable housing in the Laramie region.
“Elasticity is a fancy word or whatever, but what it really means is, if you’re looking at a period of price growth when prices go up 100%, for example, how much does housing supply go up?” he said. “So, there are some places where prices will go up, but then the supply of housing will also rise, which helps to mitigate that growth of prices.”
Then there are other places where prices go up, and supply doesn’t budge.
“Probably the most notorious example is like San Francisco, where housing prices will go up a lot and supply won’t budge at all,” Protzer said. “And that’s a really bad situation to be in, because it means that supply, for some reason, is not responding to demand.”
When supply stops responding to demand, it creates an inflation escalator that will keep driving costs up and up.
If the situation continues, housing prices become disconnected from area salaries. That in turn makes it difficult for businesses in that economy to attract new workers if it wants to grow and expand.
That’s long been the situation for places like Jackson Hole in Wyoming. But now it’s happening in many communities across Wyoming, too.
Based on Protzer’s map, there are really no unaffected areas in Wyoming anymore. Every county in the state shows at least some degree of inelasticity in their markets, based on his calculations.
“Statistically, if you take things into account like the population, the income level, and the remoteness, almost every county in Wyoming, including here’s, Albany County,” he said, gesturing at his map. “The prices (in Albany County) are above what you would expect it to be for a town that is like Laramie, given that it’s a small remote place with a certain income level.”
House Hunting In Laramie Was Harder Than Expected
That inelasticity in the marketplace is something both Vinicius Bueno and Connor Christensen experienced, when they went looking for a place to live in Laramie.
The two policy and economic analysts work for the Wyoming Business Council and had settled on Laramie as the place where they wanted to reside.
Bueno chose Laramie because of the university, which he felt made the population younger and closer to his own age. Plus, its population is more international, which, as someone from Brazil, interested him.
“I think it seems to be like a prettier city,” he added. “It’s nicer to have mountains in the background.”
The town has lived up to those expectations, but Bueno hasn’t been able to find what he was looking for in Laramie in terms of apartments.
“Most of the apartments that exist here are for students,” he said. “So, it was difficult to find apartments close to downtown for people who already graduated and are a little older.”
Bueno prefers not to own a car and to walk everywhere instead. Because of that he was hoping to live close to downtown.
“So, I now live in the Point, which is student housing, but without a car,” he said. “So, it’s difficult for me to go downtown. I had to kind of make a tradeoff between living close to the supermarket and rec center or downtown. I would love to be downtown to enjoy all of the shops and restaurants that exist there, but I wasn’t able to do that.”
That was despite searching for something more suitable for a few months.
Likewise, Christensen, who now rooms with Bueno, chose Laramie because he felt the university atmosphere would better suit his wife than other places in Wyoming.
He wanted to find a starter home in Laramie but soon found they were all out of reach for his salary.
“My wife is still in Chicago, where I moved from, so I’m waiting for her to get a job out here,” he said. “Once that happens, we’ll be more open to buying a house in Laramie.”
Even then, he believes the couple will probably be getting less house for the price than they had expected, based on prices back home.
“I think there’s stuff out there for like $275K, $300K, which is probably where we’re at,” he said. “I thought housing would be a lot cheaper here than it is.”
Christensen has continued to watch the real estate market in Laramie, just to keep tabs on what’s out there. He’s noticing a lot of competition. Places in the price range he’s after tend to go fast, which means a rapid response is going to be necessary. It also suggests to him that he could be rapidly outbid by other buyers.
“There’s a lot of room for improvement here for housing,” he said. “But once (my wife) is here, then we can assess how much she’s earning with the job she gets over here and figure out where we’re going to be.”
Housing Outpacing Economic Fundamentals
Protzer agreed with Christensen’s sense that prices in Laramie are surprising, though Laramie’s not the only Wyoming community where he sees that trend.
“Housing prices are above what you would statistically expect, given the economic fundamentals of what you observe in Wyoming,” he said. “If you take into account things like population, the income levels, and the remoteness, (prices in) almost every county in Wyoming, including Albany County, are above what you would expect. And prices are above what you would expect them to be for a town that’s like Laramie, given it’s a small remote place with a certain income level.”
What that comes down to, Protzer said, is a shortage of supply that’s no longer being addressed by the marketplace.
“This is something that sometimes there’s public skepticism of in the housing market,” Protzer said. “People, for some reason, don’t believe that supply shortages lead to high prices (in housing), which economists find very baffling. You know, you can think of other issues. You might have seen in the news recently how beef prices are increasing in the U.S. and the reason for that is because head of cattle have been decreasing. You’ve got a supply shortage and so price has been rising. There’s a lot of research that says this is also true about housing.”
With five, six, seven people competing to buy the same place, that quickly ratchets up prices, Protzer said.
“Poor supply is linked to price growth,” he said. “And an increase in supply mitigates that.”
Letting The Market Decide Lot Sizes
While it may seem like an intractable problem, Protzer said some communities are having much better success when it comes to meeting housing demands in their communities, and those successes have been linked to getting rid of regulations that are choking off housing development and making it too expensive.
One of the economist papers done on the topic recently found that a “one standard deviation increase in regulatory supply constraints led to 10% faster house price growth,” Protzer said.
Chief among the growth-inhibiting regulations are rules that set minimum lot sizes, Protzer said.
“There’s a couple of really striking findings in the economic research on this … in Massachusetts,” Protzer said. “And they found that the imposition of minimum lot sizes increases housing prices from 20% to 40%.”
Communities that do get rid of minimum lot sizes and let the housing market set lot sizes instead see an almost immediate increase in the housing market’s response to demand, Protzer said.
Success In Cheyenne
Often times the concern with elimination of minimum lot sizes is that it will result in inappropriately small lot sizes.
But that’s not what happens, Protzer said.
People in the marketplace will still demand a reasonable amount of land come with their new homes. An artificial requirement, meanwhile, cannot adjust with what the marketplace wants and can afford.
That’s playing out now in Cheyenne, which has eliminated minimum lot sizes, as well as several other regulations that were just making houses too costly to build.
“That’s led to a bit of a surge in housing supply over there,” Protzer said.
Cheyenne Mayor Patrick Collins confirmed that and said his city is seeing almost double the number of permits year to date as compared to the same period last year.
“I think we are going to see the largest number of building permits for housing since the UDC was established,” Collins told Cowboy State Daily.
Cheyenne’s Uniform Development Code set standards for how big a house could be, what percentage of an apartment building could cover the land, how big lot sizes had to be, how much stone had to be included, as well as several other factors that were adding hundreds of thousands of dollars to the cost of housing developments.
Cheyenne’s minimum lot size used to be 7,000 square feet.
“We now have no minimum lot size,” Collins said. “And we have a developer now planning to build on 2,750-square-foot lots. We also reduced our parking requirements to hopefully see one-bedroom and efficiency apartments being built.”
That’s already attracted a project that will build 46 one-bedroom apartments in a new building, Collins said.
“It’s just incredible,” he said. “A lot of the work we did we are starting to see developers taking advantage of it.”
Renée Jean can be reached at renee@cowboystatedaily.com.
