Wednesday, June 24, 2009

Visionaries and Houston Housing

On Monday, a local blogger listed three factors that determine where and what type of development occurs in Houston:
  • Government policy
  • Market forces
  • Developer conservatism
He notes that developers often lag consumer demands/ desires:
Thus it’s really proper to think of the supply of housing types and neighborhood styles as a lagging indicator of the demand for housing types and neighborhood styles. If everyone decided tomorrow that Tuscan was out and Tudor was back in, homebuilders would continue to build Tuscan until there was enough evidence that the trend back towards Tudor was solid.
I don't doubt the truth of this. It is true of many, if not most, industries. But why? And perhaps more importantly, how do businesses identify changing consumer tastes and desires? In other words, how will builders know that Tuscan is out and Tudor is in?

Let us consider housing in one small area of Houston--downtown. I lived downtown in the mid-1980's. At the time, there were only a handful of places to live--the Houston House and 2016 Main being the most significant. Today, there are dozens of options. This did not happen because of government policy. It did not happen because developers suddenly realized that converting buildings to residences would be successful.

It occurred because one man--Randall Davis--had a vision. He saw a need and he sought to satisfy it. He converted unused buildings into homes and started the downtown housing boom. He anticipated a demand, and when he proved his vision to be correct, others then followed.

This is the general trend in most industries--a visionary identifies a better product or service and offers it to the market. If his judgment is correct he (and consumers) benefits. And other producers then follow his lead. If he is wrong, he and his investors suffer the consequences. In short, the market determines if the visionary is correct or not.

To claim that demand creates supply is to reject Say's Law, which holds that supply creates demand. Or, as worded by James Mills:
[P]roduction of commodities creates, and is the one and universal cause which creates a market for the commodities produced.

In the context of the present discussion, developers (or at least one developer) created a supply of downtown housing. The demand then followed.

The visionary developer relies on his own judgment to determine what and where to build. By definition, he bucks the trend--he reaches a conclusion not shared by others. And he must rely on the independent judgment of consumers that his assessment is correct.

In Houston this process occurs with fewer government restrictions than other cities. Consequently, land uses change with relative ease. Developers can create supply without groveling at the feet of bureaucrats, trying to convince them that the developer's judgment is correct. This freedom is the primary cause of Houston's affordable and plentiful housing options.

A notable exception is the Ashby High Rise. The city government has prohibited the developers from acting according to their judgment. City officials have substituted their decisions for those of the developers and consumers. And they have used the power of law to enforce their decisions.

Ayn Rand regularly pointed out that government restrictions are, at root, an attack on the mind. They prohibit individuals from acting according to their own judgment, in the pursuit of their own values. More than other cities, Houston has respected the right of individuals exercise their own judgment and act accordingly. Houston has allowed developers like Randall Davis to be free. And all of us have benefited.

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