A Chance for Indianapolis
Indianapolis growing faster than San Diego? Yes, it's true--people are moving into Indianapolis and out of San Diego.
Recent U.S. Census Bureau population estimates show the Indianapolis metro area has grown by more than double the rate of San Diego since 2000. Beyond the percentage difference, much-smaller Indianapolis added 140,000 people between 2000 and 2006, while San Diego added fewer than 130,000.
Even those differences mask a serious problem for San Diego ... and an emerging opportunity for Indianapolis. Domestic migration--the movement of people within the nation--is a leading indicator of both population and economic growth. Between 2000 and 2006, San Diego lost a net 120,000 domestic migrants--people moving within the nation.
That San Diego's metropolitan population grew at all was due to natural increase (the excess of births over deaths) and migration from other countries (immigration). San Diego's net loss of domestic migrants was greater than net losses experienced by perennial Rust Belt losers Pittsburgh, Buffalo, Cleveland, and St. Louis. Meanwhile, Indianapolis gained more than 40,000 domestic migrants.
Nearly 4 million domestic migrants left coastal markets in California, Miami, and the Northeastern corridor (the Washington, DC area through New York to Boston), with their unaffordable housing. Generally, the migrants moved inland to more-affordable Las Vegas, Phoenix, and the far-more-affordable, fast-growing metropolitan areas of the South.
They are also coming to formerly slow-growing inland metropolitan areas, such as Columbus, Kansas City, Louisville, and Albany, as well as Indianapolis. This is a reversal of the post World War II trend that saw millions of people move west.
The reason is simple: affordable housing. Despite all the national publicity about escalating house prices, much of the nation has seen little increase in housing prices as a percent of family income.
Historically, the median multiple--the median house price divided by the median household income--has been 3.0 or less. Little more than a decade ago, all major metropolitan-area median multiples were 4.0 or less. No more.
The median multiple in San Diego, Los Angeles, and San Francisco exceeds 10, an unprecedented level. In high-cost East Coast markets, the median multiple ranges between 5.5 and 8.0.
What has caused the explosion of housing prices? Our Demographia International Housing Affordability Survey covers 159 markets in six English-speaking countries and shows all of the more expensive markets have overly restrictive land use regulations that ration land and drive housing prices up. Such regulations go by various names, such as smart growth and growth management.
The unaffordable markets have not been created by higher demand from low interest rates or liberal lending policies, as supporters of restrictive land use policies would have us believe. The fastest-growing (highest demand) large metropolitan areas in the nation--Atlanta, Dallas-Fort Worth, and Houston--have all retained median multiples of below 3.0. Indianapolis is the most affordable metropolitan area of more than 1,000,000 in the English-speaking world, with a median multiple of 2.3.
Housing is so affordable in Indianapolis that moving from San Diego will save the median-income household $1.1 million over a 30-year mortgage on the median-priced home. Of course, few median-income households can afford the median-priced home in San Diego, unless they bought it some years ago. The price differential between major metropolitan areas has never been so great.
What is becoming clear, both in academic research and in the parade of U-Haul trucks, is that smart growth and growth management policies stifle economic growth. The reward for Indianapolis is the promise of greater and more widespread economic growth. U.S. Federal Reserve Bank research found metropolitan areas with restrictive land use policies tend to add jobs more slowly than expected.
Not all Midwestern metropolitan areas are taking advantage of the exodus from the coasts. Chicago, Minneapolis-St. Paul, and Milwaukee are all losing domestic migrants, and excessive land use restrictions and the attendant higher housing prices are at least part of the reason.
Indianapolis can take advantage of this window of opportunity by maintaining its relatively free land development regime and rejecting the moving van-generating strategies of smart growth.
Wendell Cox (firstname.lastname@example.org) is principal of Wendell Cox Consultancy, an international public policy firm. He serves as a visiting professor at the Conservatoire National des Arts et Metiers and is co-author of the Demographia International Housing Affordability Survey.
(Data available online at http://www.demographia.com/db-intmigra-msa.pdf)