Despite Abundance, Texas Continues to Pull Ahead of California in Housing

What this can teach us about Elite Human Capital theory

California and Texas are the two most populated states in the country. They have remarkably similar demographics: California is 35% non-Hispanic white and 39% Latino, while Texas is 40% white and 40% Latino. Both have warm weather.

Politically, as we all know, they are almost as far apart as two states can be. Trump won Texas by 14 percentage points, while Harris took her home state by 20. Every statewide elected official in Texas is a Republican, and every statewide official in California is a Democrat.

This has had all kinds of policy implications, but one of the clearest differences is on housing.

In California, the median home price is $809,000, second behind Hawaii. That is over 2.5 times higher than Texas, where it is $308,000. This isn’t because Californians all enjoy larger homes. If you do the math as price per square foot, California housing is still twice as expensive as it is in Texas.

Taking into account income doesn’t change much either. As M. Nolan Gray writes,

If we zoom in on cities, the situation is even bleaker. Take Harris County, home of Houston, and Los Angeles County, home of Los Angeles. In 1970, the ratio of median home value to median household income was 1.4 and 2.2, respectively. In 2020, it was 3.0 and 8.6. While Houston remains a place where normal Americans can show up and claim their slice of the dream, Los Angeles excludes all but the most affluent households.

Housing is the single biggest item in the budgets of US households by far, making up one-third of what they spend. In some states, it costs 2-3x as much as in others.

This is why Abundance, probably the most influential book on the left of the last few years, acknowledges that Democratic governance has failed miserably in this area. On the left flank of Ezra and Derek, there are “anti-monopoly” types who will say no, the main problem to focus on is the power of major corporations. Yet they have not been able to show any substantial relationship between corporate consolidation in the building industry and housing prices, the way you can just look at differences between red and blue states. The world is not as mysterious as those hostile to free markets pretend.

When Ezra interviewed one of the shining lights of the anti-corporate cause, she was unable to answer the question of why Democratic states are so much more expensive than Republican ones.

Ezra Klein: But California versus Texas — I want to keep grounded there.

Why is it four times more? If you only look at market-rate housing, California is more than two times per square foot than Texas. Why?

Zephyr Teachout: As I wrote in the review, I have some initial thoughts on housing. But I actually think there are a lot of areas of overlap on housing. We both agree that there are actually significant problems with zoning.

My suspicion is that there is a decent amount of problem in the concentration in the home-building market and some of the supplies for construction market. I don’t know if that’s different in those different areas —

Ezra Klein: It just seems unlikely to me that California would be much more porous to corporate power than Texas.

Zephyr Teachout: Yes. I don’t need to fight you on particular housing policies that you’re deep in the weeds of, on zoning policies. Your theory, as I understand it, is that the main reason for the cost difference is left-wing resistance. Rick Caruso is this billionaire in Los Angeles who was leading a big NIMBY movement to make sure that you didn’t have any reform on single-family housing. Does he fit into your story?

This is embarrassing. Some on the left have simply decided that corporate power is the problem, and then work backwards. In 2024, more new housing permits were granted in Dallas and Houston than all of California. The cause of the disparity in housing prices is obvious. Land use restrictions are supposed to have some kind of positive payoff, but I’ve heard nothing to indicate that Texas suffers more than California in terms of extra traffic, strained infrastructure, noisy neighbors, or anything else that strict zoning laws are meant to prevent. I went to Dallas once and it was remarkably ugly, but Austin manages to be both pleasant and affordable. Whatever benefits stricter zoning brings to California, there is no way that they outweigh pricing people out of living in the state. I know tech workers for major corporations around LA and San Diego who make six-figure salaries but see owning a two-bedroom home within reasonable commuting distance of their job as an unreachable dream. The Bay Area is of course even worse. There is no natural reason for this; it is simply a set of policy choices that led to this state of affairs.

The rise of the Abundance movement has given me some hope. In both Republican and Democratic states across the country, there have been steps to remove supply-side constraints on housing. Texas and California have both passed major laws in the last few years on this issue. You would think that perhaps this would close the gap in land use regulations between the states. However, despite starting out with less burdensome restrictions, Texas is going farther than California in its reforms, which means that the disparity between the two states is likely to grow rather than shrink.

California Assembly Bill 130 (AB 130) and Senate Bill 131 (SB 131) substantially expand California Environmental Quality Act exemptions and streamlining for infill housing. As with its federal equivalent, the state’s environmental review process has been identified as one of the major barriers to building more housing. SB 79, also signed last year, overrides local zoning to allow mid-rise housing near transit. This is on the heels of steps taken in 2024 to make it easier for individuals to build accessory dwelling units and for the state government to place pressure on local communities that block housing.

Meanwhile, through SB 840, Texas has adopted by-right zoning rules in cities with populations of over 150,000 that sit in counties of over 300,000. This would cover 19 of the 22 largest cities in the state, with Amarillo and Laredo not meeting the county threshold, and Denton being slightly below 150,000 people as of 2020, though it will certainly meet the requirement after the next census.

With by-right zoning, cities must approve multifamily housing projects in areas zoned for commercial, office, retail, warehouse, or mixed use, so long as the project complies with applicable development rules. It largely eliminates local discretion, or the ability to keep people from residing in nonindustrial commercial districts, though certain exceptions remain for heavy industry and sensitive areas.

The Texas legislature didn’t simply accept preexisting zoning requirements as given, but placed meaningful limits on what covered cities are allowed to do in this area. More specifically, “municipalities cannot impose height, density, setback or parking requirements more restrictive than 36 units per acre, one parking space per unit, 45-foot building heights or 25-foot setbacks.” SB 840 was followed up by SB 15, which requires covered cities to allow smaller-lot single-family development on qualifying unplatted land, limiting municipalities’ ability to use minimum lot-size, setback, parking, and related zoning rules to block that housing.

While it’s a great step for California to eliminate environmental review for some infill housing, Texas never required such paperwork in the first place. Both states took steps to overrule local zoning discretion, but California did it near public transit, while Texas did so for all commercial or mixed-use areas in nearly all of its largest cities. California hopes to nudge localities into better behavior; Texas is now simply telling them that they can no longer restrict the rights of their residents and stomp on the American dream to placate selfish and short-sighted interests.

One way to think about the new Texas law is that, in most commercial and business zones in the affected cities, multifamily housing must be allowed by right, with some exceptions. In California, by contrast, as in practically all other states, major cities can still designate areas for commercial or business use only, where housing is either prohibited or subject to discretionary approval and significant conditions.

I’ll note here that Florida also passed a zoning reform in 2023, but it made by-right zoning dependent on a percentage of units being affordable. This is of course silly, since market rate housing increases supply and reduces costs for everyone. Even if you only build McMansions, then McMansions will be more affordable and more people will move into them. At that point, there will be more availability of homes at the next tier of affordability, all the way down to the least expensive forms of housing. What we actually need most desperately is higher supply and lower prices for higher-end housing, since that allows the most skilled workers to be more productive. Texas is unique in the breadth and scope of its zoning reform, which has been one of the most undercovered stories in politics.

It is interesting to watch Texas extend the gap between itself and California, even as major politicians, including Gavin Newsom, heap praise on Abundance. Conservatives are not reading books on how we need to scale back land use regulations. They’re not reading much of anything, yet somehow continue to do the right thing. Ezra and Derek haven’t completely failed in their efforts, and deserve credit for the reforms that California has undertaken in the last few years. They only look small relative to what Texas is doing.

What lesson can we learn from all this? Consider it a blow against Elite Human Capital theory, which says that on average, smarter and more intellectually inclined movements will be more likely to get policy right. And maybe ideas don’t matter all that much in the grand scheme of things, or they are downstream of coalitional interests. Republicans protect the interests of business, while Democrats are beholden to a professional activist class. Each side has its own parochial concerns, but the interests of business are more likely to be aligned with the common good than are the interests of environmentalists, labor union leaders, or civil rights activists.

After all, businesses generally get rich by selling products and services to people that they voluntarily buy. The activist class focuses on forcing people to do things that they wouldn’t otherwise. Sometimes, this can serve the common good, when for example they prevent pollution. Other times, however, it may be pure parasitism, as when a union demands a higher wage for its members, which improves their situation but restricts output and raises prices, making society as a whole worse off. Labor unions are among the most formidable opponents of abundance-style reforms in California. They get higher wages for a few construction workers, at the cost of making it much more difficult for working class people of any profession to build a life in the state. Or you might see groups with an aesthetic vision that they prioritize over human well-being, as is the case with many environmentalists.

Maybe ideas move things on the margins. Ezra and Derek topping the New York Times bestseller list might make California, say, 20% less restrictive when it comes to land use regulations. But all their success cannot change the nature of their coalition enough to get the state to Texas-level freedom. On the other hand, maybe they do in the long-run and the reforms of the last few years are just the beginning. But Texas on housing is already where the abundance crowd dreams of California being, and the former arrived at this point even as the right-wing discourse continues to be dominated by uninformed trash.

Picture I took at the Texas capitol in November 2022. Despite the Confederate monument, people of color find life much more affordable in Texas than California.

It must be noted here that the Trump administration’s main contribution to the housing issue has been trying to clamp down on corporate ownership, a completely irrational concern, but one that it shares with Elizabeth Warren and her allies on the left. This led to a disastrous provision in a recent bill that passed the Senate requiring that institutional investors – those owning at least 350 homes – sell single-family houses they build or acquire for rental purposes to individual buyers within seven years. This makes the entire bill, which otherwise has many good provisions, likely a net negative, and the whole thing may thankfully get killed in the House.

Here’s Warren justifying the ban on institutional owners of single-family homes.

They can also build as many apartment houses, as many condo complexes, as many triplexes as they want. But there’s a point of principle here, and that is that private equity cannot come in and buy up all of the housing supply in America. Homes should be for families, not for giant corporations.

The phrase “homes are for people, not corporations” is so stupid it hurts.

According to Warren, then, it’s fine to rent from a large corporate owner if…you share walls with someone else? Otherwise you either buy a home yourself, or rent it from a small company or individual? This is apparently a matter of great principle! The Warren quote above is so bad that all on its own it has shaken my conviction on how much the right dominates the market for stupid ideas. Then again, when you ask Vance which Democrats he likes, Warren is the one whose name he brings up.

So as Texas moves in a positive direction, the Trump administration and the national Republican Party shifts towards Warren-style anti-corporate demagoguery. This reflects the conservative movement now being a combination of the ghost of Reagan and business interests on one side, and stupid populism on the other. Which faction predominates depends on whether we are talking about the state or local level. The problem with national politics is that it grabs the attention of right-wing media figures and influencers, who are overwhelmingly driven by culture war grievance, conspiracy theories, and the kinds of ideas that sound good to the simple-minded. In the Texas state legislature, the ghost of Reagan and the self-interest of developers dominate. But within the Trump administration, the national conversation is shaped by influencers, and also more intellectually-inclined populists who seek to differentiate themselves from the pro-market policies that have been working at the state level.

People sometimes accuse me of worshipping Elite Human Capital. Far from it. I would be very happy to have a movement that was somewhat dumber but more pro-market and not hobbled by domination of the activist class. Unfortunately, go too far left on the human capital spectrum, you reach many of their same positions. Trump ends up agreeing with Elizabeth Warren on important issues because he’s an idiot, and the same is true of Vance because he’s outsourced his thinking to idiots in the service of gaining power. I guess we can say that at least Warren will let smart people into the country and allow scientists to develop vaccines.

If there’s one thing that can be said in defense of right-wing populism, it’s that it is too scatterbrained to ever do as much economic damage as Elizabeth Warren and the generations of activists who ruined housing in California. And it’s easily co-optable in a pro-market direction. The same voters who love every piece of populist slop Trump throws in their direction also gave pro-housing Republicans control in Texas. Unfortunately, Trump’s successor appears to be a true believer in some of the worst economic ideas out there, and someone who would fight to push the rest of the conservative movement in the populist direction. If he is successful, there may one day no longer even be relatively pro-market states we can use to point out the failures of leftism.