Why some American real estate markets are more transparent than others

Even in highly transparent markets, there are differences between cities

October 23, 2018

The United States is the third most transparent real estate market in the world , topped only by the United Kingdom and Australia.

But even in highly transparent markets, there are differences between cities , according to JLL’s 2018 Global Real Estate Transparency Index: City-Level Transparency reportLos Angeles, for example, is the second most transparent city in the world. Phoenix ranks 25th.

One of the big reasons these differences occur is because American state and municipal governments have autonomy to make their own rules around transaction disclosure and taxation, says Daniel Mahoney of LaSalle Investment Management.

“The patchwork of state and municipal laws make data availability differ across metropolitan areas,” Mahoney says. “The transparency range in the U.S. is smaller than in many other countries, like China and Russia, thanks to high-quality data standards that are commonly applied to both tertiary and primary markets, but the divergence between U.S. markets is still often underappreciated.”

A good example of local laws shaping transparency is the state of Texas, which has nondisclosure laws that prevent the sales price in real estate transactions from being public. Because only 12 states are fully nondisclosure states, overall transparency levels in the cities within them can be lower than some of their national peers.

However, in the grand scheme of things, Texas is still transparent. Two of its cities made the top 25 list of most transparent cities in the world: Dallas in the No. 20 slot and Houston in No. 24.

State laws can also increase transparency. Property taxes, for example, are more predictable in California than in many other parts of the U.S., which reduces risk, Mahoney says.

While Los Angeles is the only American city in the top three, San Francisco follows close behind in the No. 4 slot and San Diego is No. 13.

Of course, any discrepancies in the U.S. exist within a narrow spectrum, as it is still a “highly transparent” country. But as the Panama Papers in 2016 and the Paradise Papers in 2017 brought the need for greater transparency to the international stage, the differences are still worth noting, says Josh Gelormini of JLL’s Americas Research.

This is especially true because a lack of transparency undermines the development of fair market structures and interferes with competition – all of which can deter investment, Gelormini says. Meanwhile, greater transparency can help to deter corruption, tax evasion and money laundering, as well as more easily shine a light on these activities when they occur despite disclosure safeguards.

“Transparency is an additional attribute that investors and corporates alike need to consider when assessing city prospects and risks,” he says.

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