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Friday, May 12, 2006

Growth Management Bubble?

Here's a topic that we haven't discussed much here: Growth Management. Some people argue that aggressive growth management policies are responsible for much of King County's ridiculous run-up in prices. A reader pointed me toward a 2001 article published by a group called the Washington Research Council, in which they argued that King County's growth management had caused housing prices to skyrocket.

As communities develop their visions for the future, they are deciding how much land is needed for their growing populations. Washington State, under the 1990 Growth Management Act, and dozens of cities and counties around the country, have drawn geographical boundaries designed to halt sprawl and concentrate development into urban growth areas (UGAs). By channeling growth into these urban areas, and assuring the appropriate infrastructure is available, government intends to encourage economic development even as it preserves environmental quality.

But early examples of how these policies actually play out in real life demonstrate that growth management can have serious, unintended consequences. It has contributed to increases in land prices and development costs. These, in turn, have driven up new housing prices and placed an upward pressure on prices for existing housing.
The debate has also heated up in King County. In line with the state's Growth Management Act, King County established its urban growth boundary in 1994. Combined with soaring job and population growth in the mid to late 1990s, housing prices in the UGA skyrocketed.
Wow, if they thought housing prices had "skyrocketed" in 2001, I can only imagine what the authors of this paper must be thinking now. (Interestingly, a recent blog post at the Washington Research Council—currently on their front page—claims that "...the supply/demand balance will remain tight in this market, and that argues for house prices to remain firm here.") It should be noted however, that the word "bubble" does not appear anywhere in the above article.

Personally, I think that King County entered bubble territory around 2002-2003, and while the Growth Management Act certainly isn't putting any downward pressure on prices, I don't think it is responsible for pushing us into this crazy unaffordable mess. What do you think?

(Washington Research Council, 03.26.2001)


Anonymous said...

Aggressive growth managment responsible for King County's ridiculous prices?

Look, this bubble has gone all over the US and world.

The reasons are the same eveywhere. Mania speculation. Human psychology. The belief on the part of the buyer that RE was a hot commodity and they HAD to get in now.

Fraudulent lending allowing people to "buy" more house than they could afford, thus driving prices up further.

Show me ONE place in the US that has NOT experienced an RE bubble in the past several years and then we can talk about why different areas are special.

This is a world/nationwide bubble.

meshugy said...

Good topic Tim!

I think lower interest rates and easy credit have had much more of an impact on the bubble then zoning.

I lived in the Netherlands for a year...they have one of the highest population densities in the world. Yet they have preserved much of their rural farm land and still are able to export large amounts of food.

This was achieved with very strict zoning...even in the most rural areas most people live in small attached houses clustered around the town center. No sprawling developments of McMansions. I didn't know a single person in Holland who had a detached house....

BTW, they also have way lower rates of ownership. And those that do, spend way more then 30% of their income on housing. I think we've been pretty spoiled in the US. Everyone expects a huge house for nothing. In the rest of the world that's pretty rare.

Tighter zoning and higher property values may be moving us closer the European system.


meshugy said...

From the research council article:

While rising rates tend to dampen the demand for housing, rising employment tends to increase demand. The Bureau of Labor Statistics reports that the Seattle area has one of the strongest rates of job growth among large metropolitan areas nationally. Employment in the Seattle-Bellevue-Everett metropolitan area is up 4.3 percent in the last year. All indications are that strong job growth will continue. On balance, the outlook for demand here is good.

Against this strong demand, geography and regulation conspire to constrain the supply of single-family detached houses in the central Puget Sound region.

Unless interest rates go much higher or job growth is much weaker than forecast, the supply/demand balance will remain tight in this market. And that argues for house prices to remain firm here.

This has been my observation as well. The economy is just too strong here right now. It's creating a lot of demand and we just don't have the inventory to keep up.


Anonymous said...

You'd love that wouldn't you M?

If you get your way, you can kiss a home for your son goodbye.

Anonymous said...

Start your own blog M. Seriously, start your own blog where you can parrot all the crap the media puts out there in one place.

Anonymous said...

Job "growth" in Seattle is a recent phenomenon (since 2004, at the earliest). Homes started appreciating at rates well above inflation in 2003, at least (probably more like 2002).

As much as you want to cling to the notion that Seattle is Special (tm) (pat. pend.), Meshugy, there's really no evidence that this is the case.

SourMash said...

I think the GMA makes a lot of sense, whether it contributes to increased housing prices or not. Sprawl sucks.

There is nothing written in law that says that every adult citizen has a birthright to own a single family home. In places where demand is high, many can't afford one. It's not the end of the world.

I would tend to agree that the GMA has relatively little to do with the local real estate bubble.

Speculation and loose money drive bubbles, not basic supply/demand curve shaping.

Eric D. said...

Show me ONE place in the US that has NOT experienced an RE bubble in the past several years and then we can talk about why different areas are special.

Err.. the Midwest? Taking out some larger urban centers like Chicago most of the Midwest cannot be considered a bubble. The Midwest also has large amounts of available land and moderate to no growth. So you cannot discount the importance of land supply and growth out of hand.

You should be happy with the Growth Management Act, drive by the downtown areas in some Midwest cities- they are ghost towns, no one lives there except homeless people. This is what you get when you have good traffic and no limits on building in the suburbs, urban degradation and
strip malling of everything.

Anonymous said...

There are PLENTY of places in the midwest that are in a bubble.

Milwaukee, Madison, Minneapolis and all the little towns between.

Just because property is cheaper there than in Seattle does NOT mean it's not a bubble.

Everything is relative. That's why it's stupid for out -of -towners from more expensive areas to breeze in and snatch up properties because "it's cheaper here than where I came from".

Anonymous said...

The San Francisco Chronicle reports today that the steam is seeping out of the SF Housing bubble. SF RE developers are trimming prices.

See May 12th "Housingbubbleblog" article.

Anonymous said...

So, when SF implodes, Seattle will still keep rising...Right??

Anonymous said...

An interesting growth management case study:

S Crow said...

Speaking of bubbles and housing costs in general, I had an very interesting conversation with someone heavily involved in the technology scene (not a r.e. broker) where they questioned and probed how escrow functioned, leading to the question:

If a consumer could purchase a home where they would have fixed, guaranteed closing cost's, would it be attractive to borrowers? For example,you pay no more than $3000 on a purchase and this includes mortgage fees, appraisal, title, escrow etc...a substantial savings vs. purchasing services on an individual basis.

Since Tim's blog is frequented by consumers that are future homeowners and/or existing homeowners, what do you think?

Eric D. said...

s crow-

That would be a huge selling point for me. That's one of the reasons I am loath to buy a house (besides the high prices), because I'm too afraid of getting into the process and then getting slammed with closing costs and junk fees. But how would this work if you negoitated with the seller to cover your closing costs or the title transfer fee? The costs would have to clearly broken out or you wouldn't know what to tell the seller to pay you.

SourMash said...

Such deals are already out there. See ING Direct.

Ardell DellaLoggia said...

Eric D., The largest portion of the closing costs involves the lender fees and lender required prepaids. Consequently it is difficult for the person writing in the seller to buyer closing cost credit, to know how much will be needed, if you haven't yet selected the lender.

Transfer taxes are a seller cost.

The only way I have found to "guarantee" a final number to the buyer up front, is to agree to pay any difference between the amount stated at the beginning from any variance at the end, from the commission. That works fairly well.

Mikhail said...

Is housing growth in the Puget Sound area really "managed" all that much? I am under the impression that there has been a run-away construction boom for new dwellings in the last 5 years. I see new developments everywhere I drive.

Is there data that supports this "tightly managed" theory (i.e. showing that housing starts have been stable, or trending down over the years)?

meshugy said...

Another victim of the housing bubble:

Ballard Denny's destined for wrecking ball

Interesting that they had to lower their bid because "Real Property Investors LLC determined that the market wouldn't support its original bid."

What does that mean? They got over zealous and then realized they over bid? Or they're getting worried about a declining market?

Anonymous said...

Obviously, they know the top's been reached. There is no such thing as an "over-bid" in a rising market.

Anybody whose lived in the Seattle area for the past 10 years knows that. We are well-acquainted with a rising market.

That's when you put a property up for sale and watch the over-bids fly in. that's called a rising market.

they know the market's not rising anymore- duh.

Nick said...

I think this was more applicable in Portland.

Anonymous said...

Here's an interesting idea whose time has come:

It's a San Francisco thing.

Any savvy computer nerds out there who can set up the same site for Seattle?

Nick said...

I've never seen anything less interesting.

Anonymous said...

The Ballard Denny's thing is sad. It does a good business, and serves a purpose in the neighborhood. Replacing it with yet another, generic, "mixed-use" property is short-sighted.

Frankly, I find real estate "investors" to be the scum of the earth for exactly this reason: they'll sell their grandma's hospital bed if it lets them make a quick buck.

I hope they get fiscally raped in the crash....

meshugy said...

I think a lot people will miss it...I spent a lot of late nights there when i was in grad school! It was one of the only places you could get anything to eat after 10pm in Seattle.

I just drove by it and there was a camera crew. Might be on the news tonight...

Overall, the development going on in downtown Ballard seems to be pretty tasteful. They're mostly building on junk properties (i.e. the old car dealership on leary, the horribly outdated QFC, the old library, etc.) And they're putting retail spaces on the ground floors. That downtown Ballard area is a really good place for high density housing. So for the most part I'm for it. But I won't be able to get greasy food at 4am any more...


Anonymous said...

I consult to some of the largest companies in the area and every customer I have is trying to hire dozens of mid-level managers, programmers and the like, all with salaries that make home ownership affordable, at least as America defines it today. Afterall, these HR departments need to recruit the talent and paying an extra $15K or so a year to cover the increased cost of living is not an issue for them. Not even close.

It's easy to wish that the prices are all a bad dream, but with the job market I see and single family housing stock in Seattle proper becoming even more scarce due to the build up of condos and ridiculous 4/6/8-plexes I'm willing be bet that this time next year there will have been no noticable depreciation in house prices. If it's more than a 10% drop in the next three years I would consider that extraordinary too.

Lots of good talk on this site, but from where I sit, in my rental, this is how I see it.

Dukes said...

anon 2:10 said: "I'm willing be bet that this time next year there will have been no noticable depreciation in house prices."

anon, what you and Meshugy don't get is that this hasn't been feuled by job growth it has been feuled by SPECULATION!

Meshugy is a lost cause as I have tried to explain this to him before but he still spouts his rosy lovely views of dumpy Ballard everyday.

You consult, so you see some hiring, so what! I have a bro in law in real estate and a good friend who writes mortgages. You wouldn't believe that shit that they tell me they see. People pulling equity from their homes to buy 2, 3, 4 more homes, this shit is insane. Here is a perfect example, go visit this guy's site for awhile to see what I mean:

All manias end, your comment is simply asinine, especially coming from what you are using as evidence that prices won't drop. What a joke, prices are ALREADY dropping.

Dukes said...

I don't know Nick, I thought this site was interesting:
What was wrong with it?

Anonymous said...

Anon 2:10-

Good to hear about the handful of well-paid hires.

I wonder though, can numbers like that put a plug in the bursted damn of lenders in the area losing jobs?

You know, Ameriquest, Merit and WAMU? That's a lot of jobs lost in just a couple weeks.

Anonymous said...

Hello All;

I'm the reader that sent Tim the link, and while I agree that the GMA isn't totally to blame it is at least contributing somewhat. If you're interested, have a look at this other article at the research council site.

This record housing boom is probably still not enough to fill market demand. For example, for every five jobs created in Seattle during the past five years, only one housing unit has been built. Not surprisingly, the jobs-housing balance on a county-wide basis is not as severe (for more information on the jobs-housing balance question, see Washington Research Council, ePB 01-1, Managing Growth is a Balancing Act). Meanwhile, low vacancy rates have pushed rents up by an average of 25 percent in the past five years.

Nick said...

I'm not saying that the Ameriquest thing is unrelated to housing overall, but I still think it's worth remembering that it's the lack of REFI business that is causing the shuttering of a lot of mortgage shops.

Anonymous said...

You're probably not going to win a lot of people over to your side by calling them lost causes and asinine.

I don't see very much evidence of speculation in houses in Seattle proper, and one blogger does not convince me. Is there more you can provide?

As for the extraction of equity, I would like to understand how this makes any difference to the current price of a house. If you're going to say that eventually the owners will be forced to liquidate creating additional inventory and driving prices down I'm not seeing it in Seattle and have yet to hear of a story where it's happened.

I didn't say house prices would continue their metoric rise, I suggested that there is corporate backstop currently and as long as that's in place and houses in Seattle are being torn down for multiple dwelling units there will continue to be competition for them.

Dukes said...

anon 3:24 said: "You're probably not going to win a lot of people over to your side by calling them lost causes and asinine."

Frankly, I don't care if you don't like my use of terms.

When you say "YOU don't see much evidence" - it begs the question, WHO are you? Do you have contacts in the industry? You said you consult for businesses, this is a far cry from a real estate agent on the ground (my brother in law) or a mortgage broker (my good friend.

Whether you believe me or not does not matter one iota to me. I have posted 24 hour market commentaries on this blog for awhile now which consistently show a large amount of PRICE REDUCTIONS.

Seattle Price Drop (another poster on this blog) has done great work tracking areas and listing PRICE REDUCTIONS. So your "corporate backstop" idea is truly one of the most idiotic and laughable I have seen to date to defend house prices.

It fits in with: Seattle is special, everyone wants to live here, people are so educated that they would know if there was a bubble, prices always rise here, everyone is rich enough to afford the houses here excuse is just like all the other excuses out there.

Dukes said...

Here are today's 24Hour Market Stats. I finally figured out how to show just King County.

New Listings 248
Back on Market 16
Price Increases 19
Price Reductions 76
Contingents 8
Pendings 162
Solds 107
Expireds 9
Inactives 35

248 New Listings to 107 Solds. Price Reductions = 76, that is 31% of all New Listings.

So there you go anon, there is some INFO for you.

Anonymous said...

Good luck in therapy.

Dukes said...

What's the matter anon, don't like to have someone disagree with you?

My therapy is to rebutt ridiculous notions like the ones you chose to espouse here.

Anonymous said...

To those of you who insist that "good jobs" are driving the boom:

If economic growth were leading to the increase in Seattle median housing prices, we'd see median rents rising as well. That's not happening (or at least, it wasn't happening until very recently, and even now, rents aren't increasing at nearly the same rate).

Unless you believe that Seattle's super-fantastic economy is attracting only wealthy home-buyers, you have to face this fundamental reality of housing economics.

seattle price drop said...

hi Dukes-

YAY!! I am so happy you figured out how to do just King County.

I was getting very very sick of the tax records hunt and peck.

Yup. Not much evidence of the wild days of overbidding in these numbers at all.

107 sold
76 at discount
19 over asking

Looks exactly like what I've been finding since January.

But the local news still reports it's a red-hot market where everything gets bidded up.

And I've yet to hear a local realtor say any different, even though they've had access to those numbers all along.

Dukes said...

spd, local realtors and newspeople know what side their bread is buttered on.

They won't bite the hand that feeds it, the REIC (real estate industrial complex) as I have heard Eleua call it.

But, you can only stem a tide for so long. That is what is so sad for these last suckers that keep getting sucked in by these shills. They are literally the GREATEST FOOL who is left holding the bag. Probably on some overpriced 1950's POS in Ballard...right Meshugy...

Anonymous said...

Hey Tim,

Interesting article in Fortune about the deflating of the national bubble. Some specific cities are categorized as "Dead", "Danger" or "Safe" zones. Seattle is in listed in the "Danger" category.

Mikhail said...

Off topic:

I just have to rant about the price of rental homes in Bellevue. I am currently renting a 3 bedroom, 2 bath, house in Bellevue for $1500. But by just browsing around current rental listings I am just stunned at how much the rental prices seem to have gone up in the last year! I can only find condos, town-homes, or super-small houses, for rent in the $1500 range. I am just FLABERGASTED at how many $3000 (and up) rentals I see listed!!!!!!!!!!!!!!

What the heck is going on? Are rental rates really starting to go through the roof in the Puget Sound?

Anonymous said...

mikhail, one huge reason rental rates are skyrocketing for the town-home/house is because flippers are trying to rent them at a profit and not a loss... what you really want to check out is volume. Hit craigslist and its endless rentals in that price range, but how many takers?

I know two people already who HELOC'd, remodeled and are trying to rent absurdly small places for way way too much, they have to or they'll get foreclosed on. Just think about it, one dead month and you're $2400 in the hole on an empty house... that's eclipsing any 20% appreciation rate...

Thos people are doomed.

Anonymous said...

Sites like this are full of bitter people yacking about the same doomsday scenario. It is the nature of the beast. Before the housing boom, I am sure they were complaining about some other gross injustices on some other sites.

Trying to guess the top is a loser's game, just like guessing the bottom for that matter. It is fun to see how the other side thinks though.

sara said...


Trying to "guess" the top is actually pretty freaking easy as the evidence mounts.

If you read the bubble blogs (check out "") you'll see it's just a bunch of pretty smart people who are simply reporting what they see.

A lot of them were homeowners who have lived thru other RE bubbles and knew to get out before the burst.

They are very rich people now. And waiting with their sack of cash to buy back in at the bottom.

Treat houses like the stock market and you get the stock market. What goes up must come down.

If you lose, don't whine and don't be bitter. You had plenty of warning.

The MLS lists are warning you.
The Fed is warning you.
The dollar is warning you.
Homebuilders orders cut off is warning you.
Slowing sales are warning you.
Reduced prices are warning you.
Lenders being laid off is warning you.
Media anxiety to try to hype the market is warning you.

Dukes said...

Great post Sara. I like all the people/entities that are Warning Us. This is very true, people who refuse to see this do so at their own peril.

walk on by said...


I agree with the observation that these are probably desperately in over their heads "owners" who are trying for higher rents.

Frankly, I know 2 myself. They cannot afford to live in "their" places themselves so they're trying to rent it out to cover payments. Meanwhile, they rent much cheaper places.

They're hoping for a sucker to come along and get them out of a financial hell hole.

And these people are not even flippers. They just wanted to own a home and were afraid of "getting in too late".

They also "bought" a couple years back- not even at the top!

So yeah there are a lot of screwed people out there.

Just say no and look for lower rents.

sara said...

Thanks Dukes. I am astounded by the people who refuse to hear the bell.

With so much information coming at them everyday.

It's getting so blatant too. Four months ago it was there, though subtle, so I could see if people were busy with their lives and missed it.

Now we've got people screaming on TV shows and in magazines: "If you need to get out, do it NOW!!"

If somebody who needs to hear that doesn't, well, I just don't know what to say...

Anonymous said...

Guessing the top is easy? For how many years now were housing bears saying the price just couldn't go any higher...and it did. A broken clock is right twice a day. That doesn't mean it is an accurate indicator. Of course there will be a top eventually but if your guess is off by 2 years, 4 years, I don't think you can be proud of your guessing ability.

Anonymous said...

They won't bite the hand that feeds it, the REIC (real estate industrial complex) as I have heard Eleua call it.

Always whining and complaining, Dicks.

seattle long term buyer said...


It's interesting that you bless us with your presence... we like to see the other side too, just so we know what we're missing... not...

You're right... we may not be burst bubble territory yet... it might be next year or the year after that... or it may be this fall.. but we were in bubble land since last year...

See the 20/20 on Florida Bubble? It happened overnight... literally...

The week before condos were like pancakes... the next week, nobody was buying... somebody flipped the switch... and when condos get stale, so do single family homes...

I can tell you're either in RE or you just bought and you feel bitter and want to fan the flames so you can make a quick buck... and sites like these just promote the irrational paranoia of poor people...

People like just want to report what we see and don't have much to lose... so what if I miss out on 200K appreciation... I can save that up in 2 years after taxes (and every 2 years thereafter after the bubble bursts) whereas losers who depend on RE know that the game is up... so guess who's bitter.... I'm not

The bottom line is this... there won't be 20% appreciation this year, unlike last year... any realtor that tells you otherwise is lying through their capped teeth...

Maybe you'll get 10, maybe you'll get 5, maybe it's flat... (or worse)...

If you're a speculator, the carrying cost, the personal stress and worry (am I missing the exit), makes it less juicy to be in RE now... sure you'll make money when you sell in 10 years... but not in the next 2 years...

assuming a nice 10% appreciation in 12 mos... on a 500K home that's 50K... assuming you closed the loan with 10K, you sell the house and pay 5% commission, you're monthly carrying cost is around 3K (IO loan), let's not even talk about capital gains...

Will you profit from the 50K appreciation? You do the math...

You'll only make money if it appreciates at least 15% and I can guarantee you that is not happening...

So this is what's going to happen... the smart investor knows the game is up... he still has one property or two in his name... he knows he has to sell that sometime soon... he figures this summer I'll get premium price... (multiply this number of investors by 30% of listings and that's how much the inventory will rise in the next 6 mos..)

The same seller who's bailing out is not going to buy again... his money is going to rubles... he most likely will rent... or go to cancun for a year on his earnings and come back when the market has recovered...

so who's left to buy homes? People like me... long term buyers... and I can assure you there aren't that many first time homebuyers around who plan to stay long term that can afford the median home... so the only possibility is a bunch of X-Cals coming up and propping the market short term... but wait... if they can't sell their so cal home, they can't buy here can they? so that's not necessarily going to happen quickly...

And one last thing... there is no home shortage... if there is a home to be rented, then that's no shortage.... shortage is when you can't even rent a home... so don't count on shortage to prop up the bubble either...

Gushy said...

I'll guess the top. 2007 when some 2 trillion in ARM's readjust. I would say we will see a foreclosure boom in that year.

So there you have it anon. It's not hard to figure out at all.

Here's the equation: People in homes they can't afford + the use of ARM's to get them into those homes + interest rates rising + having to pay an additional $500 to $800 a month on a house = FORECLOSURE.

But they will sell it you say. Yeah, them and the millions of others in the same situation will flood the market thus creating a buyers market. Have fun in la la land buddy.

Anonymous said...

No guessing involved:

Properties stay on market longer. check
Properties get priced reductions. check
Properties sell below asking. check
Hysterical realtors and media screaming "It's not the top!! Everything's fine!! check

Anonymous said...

Mikhail- You asked my question exactly! Is housing really "managed" in Seattle?

I moved here in '92 and the first, overwhelming impresion was SPRAWL. It sure hasn't gotten less sprawly since then.

And having lived through 15 years of debate over bldgs. higher than 5 stories, preserving SFH neighborhoods, etc., looks like we're going to just keep sprawling.

Seattle is on the LA model. The only good thing about the housing boom was the muti family and apt. bldgs. that help with density.

Anonymous said...

"Trying to guess the top is a loser's game, just like guessing the bottom for that matter."

Speak for yourself pal, I've done both successfully in several different markets.

I've considered investing in housing this year but it's close enough to the top for my money. Unlike the stock market, it's too easy to get stuck in housing owing hundreds of thousands, and I'd rather be too early than too late.

The trolls will be gone by fall.

seattle price drop said...

"The trolls will be gone by Fall"= there will be no possibilty of saving the situation by then.

No matter how deluded they are, by then everyone in the US, including our dear Seattle, will know the market is toast.

PepeDaniels said...

Anonymous said...
To those of you who insist that "good jobs" are driving the boom:

Again a little perspective from the other not-so-special corner or the country - Florida.

They've had an undisputable housing-condo boom. But the wages there have sucked for decades and are still so far behind normally great career opportunities go unfilled.

I remember an article in the last year about something like a 15-20% vacancy rate in Ft. Lauderdale city government. Florida is also something like 20 thousand teachers short etc.

So, for those who are seeing the disconnect between wages and boom, I think you're more correct than not.

Of course, Seattle's special ;-)

pismobear said...

I don't care, I want a big yard and a tall fence around my house that I can electrify to keep out the illegals and other minorities that are coming. My pit bulls and rotweilers will do the rest if they breach the first line of defense. I've joined the local shooting club and picked up a right to carry permit from the City. I thought about land mines but I like the postman and my dogs tolerate him. My security systems, and interlocking fire would even stop the Mission Impossible people. So subdivide and conquer all you want and lower my taxes.Oh, they just did, at least until 2010.

PepeDaniels said...

pismobear said...
I don't care, I want a big yard and a tall fence around my house that I can electrify to keep out the illegals and other minorities that are coming.

Uh, dude, aren't you looking for like the rural Idaho blog or maybe the Minuteman realty blog?