Edge of Portland's urban growth boundary (photo courtesy Google)
In Wednesday's Oregonian, Jeff Manning reported from the Home Builders Association of Metropolitan Portland's annual forecast breakfast. And while builders projections for the future are mixed at best, the conversation is illustrative of how the Great Recession's affect has created some changes of heart about the city's urban growth boundary.
"Congratulations on your survival," David Crowe, chief economist of the National Association of Home Builders, said in his remarks at the breakfast. "This has been the worst housing depression since the Great Depression. Any way you measure it, it's been just awful. And it's been going on for five years in some areas."
The HBAMP has traced builder confidence for 25 years. On a scale of ozero to 100, builder confidence hardly ever fell below 50 between 1985 and 2006. Today, it is at 16, Crowe said. Building permits for single-family homes in the Portland metro area exceeded 10,000 annually every year but one from 1993-2005. But permits fell substantially below 4,000 in 2009 and 2010.
One can't help but see today's low confidence as a direct result of overzealousness a few years ago. For example, through most all of the past century, Americans have spent an average of 3.2 times their annual income on the cost of a home. During the economic boom of the 2000s, the ratio reached as high as 4.7 nationally and 5.4 in Oregon.
In a city and region fashioning itself as the sustainability capitol of America, it's just not sustainable to expect people to spend 5 times their annual income on a house. It's not surprising that today the ratio has returned to more normal levels, a 3.26 rate nationally and 3.7 in Oregon.
There is some reason for hope. Interest rates remain historically low. And because so relatively few homes have been built here over the past three years, any uptake in the market could lead to a shortage of homes, which would be music to builders' ears.
Perhaps most noteworthy of all the remarks and attitudes to come out of the Home Builders Association of Metropolitan Portland's annual forecast breakfast was the admittance that our metro area's urban growth boundary has been a boon, not the boondoggle home builders used to see.
Tim Sullivan of John Burns Real Estate Consulting said at the breakfast that if not for the state's strict land-use laws, Oregon might have suffered a fate more like Phoenix or Las Vegas: massive overbuilding that has created an economic black hole, expecially in the once big-booming Sin City. "It's because of your urban growth boundary," Sullivan said. "You're the antithesis of Phoenix, where you can build anything, anywhere at any time."
Land-use laws like the urban growth boundary have frequently assailed by the Home Builders Association and other builders in the past. Opponents of the urban growth boundary have cited high housing prices as an indicator of the policy’s problems. Where land once accounted for about a quarter of the home-building cost, they argued, now it takes up to 40 percent of the cost. Something had to be done! They also suggested the Portland metropolitan area was facing a shortage of affordable housing as markets are hurt by the UGB factor. When the regional governing body Metro announced a few years ago that suburban Damascus would be the only initial area of expansion for the growth boundary, leaders in Hillsboro, Forest Grove and other 'burbs were irate.
After all, joining the UGB makes your land more valuable. A 2000 study by Eban Goodstein, an environmental and economic resources professor at Lewis & Clark College, explored whether the restricted supply of land created by growth management policies affected housing prices or whether Portland, like other hot cities, simply had more demand and speculation. He found land selling for $150,000 an acre at the edge of the boundary and $18,000 just beyond its border. But does this necessarily mean an argument for UGB expansion?
According to data from the National Association of Home Builders, the median price of homes in the Portland area rose from $85,000 in 1991 to $144,000 in 1996 and $220,000 in 2001. During that time, Portland's was the second-highest percentage increase in the country, setting up concerns about a crisis in affordable housing. But there was no accompanying data to show that the UGB was largely responsible. Other cities like Denver without growth boundaries saw parallel rises in home values.
Willamette Valley farmland near the UGB edge (photo by Brian Libby)
Some were critical of the UGB for a more practical reason: If places like Hillsboro and Forest Grove in Washington County have been responsible for adding jobs for the region, shouldn't that be tied to where the UGB is expanded? After all, the thinking goes, why allow a bunch of homes to be built in expanded UGB territory in an outer eastern suburb/small town like Damascus when the tech jobs are on the other side of the metro region? For this reasons, some builders and members of the real estate community have been in favor generally of the UGB but desirous of more flexibility.
Besides, many economists have come to believe housing prices are not a reflection so much of land use policy but demand.
“Fast-growing regions make housing prices rise,” said Joe Cortright, an independent economist working with the Westside Economic Alliance in a Portland Tribune story by Kristina Brenneman. “It’s really important to look at the demand-side factor,” Cortright said. “The rising price of housing shows you are becoming relatively desirable.”
Goodstein's 2000 study concluded that the urban growth boundary has had “a small, and statistically weak, upward influence on housing prices.” His figures found if the boundary were not in place, housing prices in the Portland area would be about $10,000 less on average. That's a lot, lot less than the value of most people's homes nationwide have already dropped in the last three years. But it's nothing compared to the money saved by maintaining the integrity of the region itself as a livable place. That ought to deliver some measure of confidence.
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