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Friday, January 05, 2007

What to Blame? Not Growth Management.

Here's a guest editorial from today's Seattle Times that says something I've been saying all along: The "home prices are high because we're running out of land because of Growth Management" argument doesn't hold water.

The cost of housing is spiraling out of control in many parts of the Puget Sound region. King County is redefining sticker shock for homebuyers as the median price of housing approaches $440,000. Years of double-digit increases are a serious threat to many people's dreams of home ownership, and to our region's livability.

As the problem escalates, the search for real solutions has become increasingly high-stakes. To tackle this challenge effectively, we must work together with accurate information. We must also move beyond misleading and misdirected attacks on environmental and growth-management laws. The evidence suggests these attacks are misleading and unwarranted.

Opening rural areas to sprawl development doesn't increase housing affordability, nor does protecting rural areas from irresponsible development make housing unaffordable. The state's Growth Management Act actually requires local governments to take steps to improve housing afford-ability and choice.

The Brookings Institution has found that market demand, not land constraints, is the primary determinant of housing prices. Its study, "The Link Between Growth Management and Housing Affordability: The Academic Evidence," reported that "housing prices are actually determined by a host of interacting factors, such as the price of land, the supply and types of housing, the demand for housing, and the amount of residential choice and mobility in the area." In other words, the impact of growth management on housing prices is only a part of the equation, and a relatively small one here.

In our popular area, demand is the big driver of housing cost; people want to move here and stay here. Increased income and purchasing power also are major factors in the rising cost of housing in our region.
"Market demand... is the primary determinant of housing prices." You don't say. Like maybe, market demand created by loose lending and low interest rates? The article mentions "increased income and purchasing power," but then goes on to over-emphasizes "our relatively high local wages" (without providing any actual comparative data), and essentially ignores the fact that the "increased purchasing power" comes from loose lending and rock-bottom interest rates.
In the end, our message is simple. We must do more to tackle the housing affordability problem in our region. But, we cannot succeed unless we focus on the facts about what is really driving our housing costs.
I agree completely. Which is why I am so disappointed that in the entire 56-page study, the hand that lending standards and interest rates have had in creating the excessive demand of recent years is essentially completely ignored. Go ahead, search the pdf for "interest rate" or "financing" or "lending." Nada. They also chose to ignore the mass psychology that comes into play when appreciation of an asset is believed to be a "sure thing." In my opinion those are the two biggest reasons that the price of housing has shot up so much in the last few years.

I get the feeling that the purpose of the study wasn't to highlight the true reasons that housing is unaffordable, but rather to prove that growth management isn't the reason. I have said all along that "not enough land" is a bogus argument for skyrocketing prices, but this study does a disservice by ignoring the true driving factors in our recent price run-up.

(Aaron Ostrom & Carla Okigwe, Seattle Times, 01.05.2007)

17 comments:

Jon said...

Can we really say that the entire boom of real estate in the Northwest is due to interest rates and loose lending? Come on, this is a small factor... We have to go back to when our job market sucked, and we were lagging in the overall economy after 9/11... we still had a sterling star which was the real estate market.

The real estate market will continue to remain strong, and the more pessimists think the opposite, the more they will be left in the cold.

The GMA is a fantastic reason to live in the great NW, and another reason NOT to purchase a McMansion... focusing more on condominiums and townhomes in much more desireable locations.

After all, even now, the old adage in real estate is this:

LOCATION, LOCATION, LOCATION!

The Tim said...

Can we really say that the entire boom of real estate in the Northwest is due to interest rates and loose lending? Come on, this is a small factor...

I don't know who you're addressing with that comment, since I definitely didn't say that easy money was the "entire" factor. What I said was that easy money + mass psychology were the two "biggest" factors.

Yes, we live in a desirable area. Yes, the local economy is doing fairly well. If home appreciation had been ~10%, I would accept those as the primary reasons. However, neither of those factors explains the runaway appreciation of 2003-2006.

wreckingbull said...

The GMA is a fantastic reason to live in the great NW, and another reason NOT to purchase a McMansion... focusing more on condominiums and townhomes in much more desireable locations.

Have you ever driven through Maple Valley or Snoqualmie Ridge? Don't see too many builders running up against the 'land shortage' problem you tout.

Grivetti said...

Yeah, most agreed Tim, the 56 pages and glossing over the $440,000 Gorilla in the room that IS loose lending standards.

Its absolutely no coincidence that Payday Loans are as ubiquitous as Starbucks these days. A whole economy has sprung up, not based on anything other than DEBT, solely and simply. The 2000's will be known as the Debt Decade.

And to dismiss wholesale real-wage statistics, Boeing employment numbers vs. wage rates (lot less Boeing workers here than there were 5 years ago... that and the CEO's skipped town), vs affordability and interest rates is nuts and suspect.

Market factors are obvious: Cheap credit created demand, with Seattle population increases nominal and real-wages decreasing (yes, here in Seattle too!), Boeing job-loss and the tech-bust, the demand was created via loose lending standards, exotic mortgage products, zero-downpayment loans, etcetera and so on, weariness over stock investment (which fueled the psychology).

Greenspan money machine => Seattle Housing Boom

Pure and Simple

Grivetti said...

the more pessimists think the opposite, the more they will be left in the cold.

Hahahahaha [/Pee-wee Herman chuckle]

Buy now or get priced out forever!!!

Delicious...

matthew said...

Can we really say that the entire boom of real estate in the Northwest is due to interest rates and loose lending? Come on, this is a small factor.

Small factor????? What flavor of Kool-Aid did you drink?

Did you notice that the drop in interest rates occured at the exact same time that you cite a sterling star real estate market? Coincidence? I think not!

plymster said...

Jon,

If the cause for the Seattle housing boom was location, location, location, then is that why THE ENTIRE NATION has experienced the highest rate of housing appreciation ON RECORD?

Maybe you're right, and the entire US (and Britain, and Australia) are the best places to live in the world.

Then again, maybe the lowest interest rates ON RECORD (there's that phrase again) and the loosest lending standards since the great depression (soon to be known as "Great Depression I") might have something to do with the "Seattle" housing boom.

Cam said...

I agree there is not a shortage of land.

I actually wish the developers would keep their McCraftsmans off the tiny lots in-city, as it really screws up nieghborhood dynamic. Go to Redfin and look at new construction - 20% or there abouts of new houses are million dollar McCraftsmans stuffed shoulder to shoulder on short plats after raising perfectly good homes.

We actually do have pretty decent incomes in Seattle, however. The Census Bureau's Community Survey states Seattle is 6th in 2003. Still, it doesn't mean housing hasn't become unaffordable, even on those incomes.

Alan said...

Phoenix has plenty of land, but their price shot up too.

octopuswithafez said...

20% or there abouts of new houses are million dollar McCraftsmans stuffed shoulder to shoulder on short plats after raising perfectly good homes.

I have no problem with old, small, outdated houses being razed for new construction in the city. The land is to valuable for a 1200 sq. ft. 90 year old house if I can fit a 2800 sq. ft. house with modern amenities. Not every house in Seattle is a quaint craftsman but a lot of cheap housing from the 10s,20's and 30s...

wreckingbull said...

I have no problem with old, small, outdated houses being razed for new construction in the city. The land is to valuable for a 1200 sq. ft. 90 year old house if I can fit a 2800 sq. ft. house with modern amenities. Not every house in Seattle is a quaint craftsman but a lot of cheap housing from the 10s,20's and 30s...

The lots in Seattle were not designed for these monster-box houses. They are too small. These belong on 10,000 square foot lots minimum.

octopuswithafez said...

The lots in Seattle were not designed for these monster-box houses. They are too small. These belong on 10,000 square foot lots minimum.

If the house fits and people buy them then there must be demand for them. Nonsense about small lots, if the setbacks are complied with. What's the diff?

Cam said...

I don't see where the demand is coming from. Take a peek at the new construction for sale right now. Much of it has been sitting around for quite some time.

I think the market may be running low on rich morons who are stupid enough to pay a million plus for a poorly constructed house on a postage-stamp lot, with a view of a neighbor's wall.

Every one that goes up means one less affordable house available for folks with limited funds and a bit of common sense.

Of course, this goes double for the majority of the remainder of the stock out there right now: over-priced flips with granite counter tops where the buyers over-paid and jammed too much tacky, expensive finishings in, and now need to double their purchase price to make any profit. Hopefully there aren't too many suckers too inept to look at price histories or buy into the NAR mantra remaining.

Someday a real rain will come and wash this quick-buck scum off the streets.

Hopefully sooner rather than later for the sake of the neighborhoods.

wreckingbull said...

if the setbacks are complied with. What's the diff?

The diff is that these abortions destroy properities around them. You may not agree, but I enjoy being able to look out a window and see something else besides HardiPlank.

PepeDaniels said...

octopuswithafez said...

The lots in Seattle were not designed for these monster-box houses. They are too small. These belong on 10,000 square foot lots minimum.

If the house fits and people buy them then there must be demand for them. Nonsense about small lots, if the setbacks are complied with. What's the diff?


Just aesthetics and class

Gene said...

What I said was that easy money + mass psychology were the two "biggest" factors.

Mass psychology? What the heck are you talking about?

matthew said...

Mass psychology ala "THE MARKET IS CRASHING EVERYONE SELL!"

OR "BUY NOW OR BE FOREVER PRICED OUT"

Mass psychology is one reason you see such huge swings in the stock market, no one wants to be on the sidelines during a run up and be called a fool, and no one wants to be the last guy holding the bag of a worthless stock.