What I learned from Richard Green recently about California and Texas

Recently I attended an undergraduate class to speak in tandem with Richard Green, who is the director of USC’s Lusk Center and one of my favorite bloggers.

So California has a lot of underwater mortgages while Texas does not. The question becomes why? Is it because one was bad and sprawling while another was wonderful and smart growth-y? That doesn’t seem likely, though California has a lot of big houses in places that make no sense for big houses, where overcapitalized consumers with incomes who could not support the loans bought (Fresno, Riverside.)

Both had a lot of built during the boom.

California makes it hard to build housing; the environmental and building regulations are very hard to get through. Texas makes it easy. As Richard says, if you’ve got a pickup and a shovel, you can build a house in Texas.

So why does California have so many foreclosures while Texas has so few? Upright moral fiber of its denizens? Free markets?

Turns out not. Most of the mortgage interest innovations that opened up subprime lending for larger numbers of borrowers in California were illegal in Texas. Market regulation at a different point.

Very interesting.