Costs of "Dumb Growth"
Imitating Portland's policies of urban growth boundaries will not guarantee quality growth or a better transportation system within a metropolitan area. Urban growth boundaries must be complemented by smart land-use, transportation, and housing policies. Portland, though imperfect, has created this complex of policies, and the city's residents are currently reaping the benefits.
We can show that Portland is doing much better than Cox admits and demonstrate that many of Cox's statistics are questionable, if not simply false. Cox's writings have distorted the facts. We aim to correct the record.
Smart Growth Makes Housing Affordable
Cox's Claim: The median price between 1991 and 2000 in Portland rose 110 percent to $168,000, while Atlanta's rose 65 percent to $150,000 and nationwide the average rose 49 percent to $152,000.
Error Number 1 is that Cox's source, the National Association of Home Builders (NAHB) affordability index, overstates the housing affordability problem in Portland. Portland has a median income of $55,900 and median sale price of $168,000, making the ratio of price to income 1 to 3.
However, NAHB gives Portland an affordability score of 40.2. Using a simple ratio of price to income, Portland is more affordable than Santa Barbara, California, where median income is $56,500 and the median sale price is $210,000 (a ratio of 1 to 3.7). However, the NAHB system ranks Santa Barbara as more affordable, with a score of 45.7. Similarly, Denver is ranked much more affordably, with a score of 56.3, even though that city's ratio of income to home price is exactly the same as Portland's.
The NAHB index doesn't reflect reality, because its methods are overly abstract. To determine affordability, the NAHB calculates a home mortgage and compares it to the median income in an area. Because mortgage calculations are affected by property taxes and insurance, the abstract model gives some curious results.
Oregon's voters have chosen to have high property taxes in return for having no sales tax. Insurance rates are also higher in Oregon than in many other states. These factors throw off standardized, nationwide calculations.
Land Cost and Affordability
Cox errs a second time when he blames Portland's urban growth boundary (UGB) for housing costs, ignoring other factors. While housing in the region did get more expensive for the first few years of the 1990s, land supply played a very small role in rising costs.
According to the Oregon Housing Cost Study, the median home price in the Portland area rapidly increased from 1991 to 1998. Yet in looking at specific developments, the increase in raw land costs was only $15,704 of the total increase, less than the $25,317 increase in hard and soft land costs, such as water and sewer lines, utilities, system development charges, and architecture fees.
The same held true elsewhere in the state. In Eugene-Springfield, the modest increase in land costs, $1,778, was dwarfed by the increase in the cost of building the house itself, $18,772. In Salem, land costs rose by only $1,542 while hard and soft land costs rose by $21,670 and the cost of building the house rose by $12,791.
The only cost a UGB could affect is land cost. Land cost has risen slightly, but other costs are responsible for most of the housing price increase.
Finally, Oregon's UGB laws do not restrict the amount of available land. Oregon law requires fast-growing cities, cities with populations over 25,000, and metropolitan service districts to include enough buildable land for the next 20 years of residential growth within their urban growth boundaries (Oregon Revised Statutes, 197.296). A perpetual 20-year supply of residential land clearly is not a severe limit.
A joint study by the Home Builders Association of Metropolitan Portland and 1000 Friends of Oregon concluded that Oregon's program of UGBs, in combination with other tools from the land use program, has kept housing prices in the Portland area lower than other West Coast cities. This is because the program requires cities to designate land for all types of housing, and because developers wishing to build on that land get one of the fastest permitting processes in the nation.
In 1992, the same group wrote, "Land use regulation can in fact be a powerful force to reduce housing costs and red tape. In Oregon, it has done just that."
Real Sources of Rising Housing Cost
Cox's error number three is to focus on affordability in 1990 and 2000, ignoring the more detailed trend. Despite an ongoing economic boom, Portland's housing cost increases flattened out after 1995, and now roughly match the rate of inflation.
The chart indicates how home prices changed as the UGB was created and the "functional plan" (land use plan for the region) was adopted. In fact, the percent change in home prices stabilized and began to fall as the functional plan was adopted.
If anything, this graph shows that the region's land use rules have been a success. This could be because developers enjoy the stable environment of predictable land use rules. The Oregon system seems able to provide housing reliably, even during boom times.
As a fourth error, Cox ignores that growth management actually helps improve affordability. A Rutgers University study concluded that without a statewide planning act in New Jersey, each new home would cost $12,000 to $15,000 more.
Rutgers pegged capital costs attributable to sprawl development patterns at $1.3 billion over 20 years for roads, water, sewer and school facilities. Additional operating and maintenance costs of $400 million annually were linked to sprawl development.
These conclusions have been supported by scholarly research published in the journal Contemporary Economic Policy and the Journal of the American Planning Association.
John Fregonese is a planner and principal of Fregonese Calthorpe Associates in Portland, Oregon and a member of Congress for the New Urbanism. Lynn Peterson is a planner with Tri-County Metropolitan Transportation District of Oregon in Portland.
This article was excerpted with permission from "Correcting the Record," a publication by the Congress for the New Urbanism.