In yesterday's WSJ, there was an advertisement pointing to the new Phillips Creek Ranch development in Northern Dallas. Here is a list of the new homes currently for sale. Located 30 miles from Center City Dallas, you can buy a 3500 square foot house for $500,000 ($143 a square foot). Suppose a household pays a down payment of $125,000 and finds a 30 year mortgage at 4%, this household's monthly mortgage payment would be $2200. If a household head makes $90,000 per year (Texas has no state taxes) and pays 35% in total taxes, this household clears 4,875 per month so this house expenditure would be 45% of after tax earnings. Given that the local schools are excellent, this household would not us private schools.
What does this household get for making this investment? While I have never visited this area, the website does a great job boasting of all of the amenities and the new community that has been built. By buying the house, one is also buying a natural environment and a community and a set of local public goods such as a pool, athletic gym and other amenities. People will meet each other at these locations and social capital will be built. The developers have figured out how to create a new city within driving distance of the "old city". The cheapest home in the development will be $480,000 and thus there is a range of the income distribution who cannot afford to live there. Should the developers feel guilty about that or is that another attractive feature of their new community?
How have the developers been able to offer so much good stuff for so little $? The further land is located from a city center, the cheaper it is and supply side forces (competition between developers) plays out.
I will write a second blog post on the social cost of such development.