Richard Florida
by Richard Florida
Mon May 25th 2009 at 1:00pm UTC

Bubble Cities

Map by Scott Pennington, Martin Prosperity Institute

This map charts the housing-to-wage ratios for U.S. metropolitan areas in 2006, the height of the bubble. It differs from the more commonly used housing price-to-income ratio. Historically, housing prices have been about three times income, but by 2006 housing prices had soared to a high more than five times incomes. In Irvine, California, the housing price-to-income ratio soared to 8.6 by 2006.

The housing price-to-wage ratio may provide a better gauge of housing bubbles. Income is a broad measure that includes wealth from stocks and bonds, interests, rents, and government transfers and other sources. Wages constitute a more appropriate gauge of a region’s underlying productivity, accounting for remuneration for work actually performed.

Forget ratios like four or even eight. Six regions – all in California – posted ratios of 15 of greater: Salinas, Santa Cruz, Santa Barbara, Oxnard-Thousand Oaks, Napa, and San Luis Obispo. Another 12 metros had ratios above 10 – L.A., San Francisco, San Jose, San Diego, and Riverside, California, as well as Honolulu, Hawaii, and Naples, Florida.

The housing-to-wage ratio also generates a number of surprises. Greater New York’s ratio (9.4) was slightly higher than Las Vegas (9), and Greater DC..’s (8.7) slightly bested Miami (8.4). Boston (8.1) and Seattle (7.6) topped Phoenix (7.2). Chicago’s (5.9) was higher than Tampa (5.6) or Myrtle Beach (5.5).

What regions seem to have avoided the bubble? The cream of the crop on the housing-to-wage ratio are Dallas (3.5), Houston (3.2), Pittsburgh (3), and Buffalo (2.8).

One Response to “Bubble Cities”

  1. Michael Wells Says:

    In Oregon. Portland didn’t do too badly, in the 4.5-6 ratio, and isn’t suffering too much from the collapse, prices down maybe 10% from peak. The places that show the highest ratios on this map had their markets distorted by (largely) retirees from places with much higher housing prices (many of those 15x California counties), Bend (Crook County) in the center and Ashland (Jackson County)in the South. Bend of course in now a poster child for foreclosures.

    In California, the Central Valley which is suffering the most got up in the 9x range, while the 10 or 15x cities (largely wealthy enclaves), aren’t hit as badly.