Urban Growth Boundary Malarkey
A common argument about housing prices that I've personally noticed popping up frequently in the last few weeks is that they are as high as they are here in King County thanks in very large part to the Growth Management Act (GMA). Specifically, the argument claims that the Urban Growth Boundary (UGB) has so limited the available land to build on that the supply of new homes simply has not been able to keep up with increasing demand.
Here are two simple reasons that the UGB argument is nothing more than a red herring and a canard:
Reason #1: The UGB pre-dates the present run-up by roughly 10 years.
The UGB was put into place in 1992, and has remained largely unchanged since. If the UGB were to blame for high home prices, one would expect to see home prices begin to shoot up shortly after its enactment.
From January 1993 (the earliest month I have data for) to January 2002, the median closed price of single-family homes in King County increased an average of 6.3% per year. However, from January 2002 to December 2006 (the most recent month I have data for), the median increased 11.1% per year.
If the UGB is to blame for the ridiculous run-up in prices, why were its effects not noticed until ten years after it was enacted? That makes no sense.
Reason #2: King County was not alone in the home price run-up.
Many cities and counties across the entire country have experienced runaway home price growth over the past five years. UGBs cannot account for this near-nation-wide phenomenon. Absolutely zero evidence been provided to explain the notion that even though King County home prices jumped up by an unprecedented amount, it was not due to the factors that drove home prices up elsewhere in the country. If it is granted that these macro-economic factors had a hand in driving up King County home prices, why blame the UGB?
It would take quite a stretch of the imagination, combined with a healthy dose of tortured logic to attempt to claim that although home prices in King County were skyrocketing at nearly the same time as the rest of the nation (delayed by ~1 year), it was for an entirely different reason. Oh, and by the way that reason is a law that was passed ten years ago.
Yeah, that's the ticket.
(King County, History and Background of the Comprehensive Plan)
(HistoryLink, Urban Growth Boundary)
12 comments:
The GBA might have covered enough undeveloped land for ten years of development.
I'm not saying that it what happened, but it is a possible explaination.
Didn't you compare housing supply to population recently and demonstrate that there is more housing per person now than there was in the 50's or something?
Yes, I did, although the occupancy rate is only at 1980's levels, not 1950's. The post is called Big Picture: Supply vs. Demand.
So unless the data that I based that post on was grossly incorrect, the ten-year theory wouldn't hold much water.
One other factor to consider in the UGB discussion is the grandfathering of building and land use permits. I haven’t followed the policy very closely since the late 90’s, but I seem recall that much of the reason that the UGP was such a hot topic in the mid 90's was because there were actual limits to how far sprawl could now travel up I-90. Combining that with the legislation for the Shoreline's Management Act (100 ft development buffers around stream zones) in the later 90's was enough to cause a property rights uproar.
It would seem strange to see a marked drop off in construction in the first five years, but over ten it would definitely become apparent. However, that would be contingent on how long the permits remained active and how long the owner's of said permits took to develop the properties. That being the said, we could potentially still be seeing new developments in and out of the growth boundary.
So without that information on every single parcel in every area of the county (which the REIC will not take the time or money to provide) that argument holds no water whatsoever. Given the post that Tim made about supply, it’s bunk.
Well, it should be easy enough to tell if the growth restrictions have had an impact on growth: just compare the housing start trends in the Puget Sound and other regions.
If Washington's growth management policies have really had an impact we should see that housing construction has been kept proportionately low than in other regions.
Does anyone know where we can find Puget Sound housing start trend data?
Oregon does not really have an urban growth boundary as the bouandary is required to contain 20 years' worth of future urban growth. Every time there is more sprawl the boundary just keeps moving.
Kaleetan:
Yeah, we understood the argument the first time. We're saying that it's wrong.
Nothing.
We are experiencing a national credit bubble.
As I've been saying for years, after studying historical data, the PNW (Seattle and Portland mainly) lag behind California and the East Coast cities by 6 to 12 months. If you look at the data, that's pretty much what's happening. We've been flat since May 2006. The rest of the country leveled off in mid to late 2005. Boston, SD, LV, Fla have started to see YOY declines, and we soon will to.
Seattle is not special, just slow.
biliruben: "Nothing [makes the Seattle market special]."
Really? Aren'y the housing starts in the Puget Sound proportionately lower than in places like Phoenix, Las Vegas, San Diego or Sarasota?
I don't know. Are they? I wouldn't be suprised if our starts are lower than Pheonix or LV.
I haven't seen the data. Care to share?
In any case, a few percent fewer new houses doesn't justify the 10+% annual increases in housing prices.
We've had more than enough housing starts to support the tepid population increases this area has seen.
I repeat. Seattle is not special.
Something I have been thinking about is investors.
We do have a top-end population that has a fair amount of wealth. If a fair amount those people decided that their wealth was best invested in residential real estate, perhaps that would be reason to think Seattle were special.
Of course, San Diego would also not be immune to this effect, yet they are seeing price declines.
Also, it doesn't mesh with what I'm seeing on the ground. Those with real wealth, such as baby-boomers, are buying vacation properties out on the peninsula, the mountains or the coasts. They are generally too smart to think real estate is always a good investment. They buy to enjoy them not to primarily make money (though it wouldn't hurt).
The dudes buying houses and condos as rentals or flips are young 20 and 30-somethings who are gambling with high-leverage loans in-city and the suburbs. There is no real wealth behind it, and it isn't sustainable.
Those houses and condos will come back on the market eventually, one way or another.
I know a few people doing this. I can't talk them out of it. Normally reasonable people blinded by dancing dollar signs and promises of early retirement. I worry for them. Some are smart enough, or got in early enough to pull it off.
Others won't be so lucky.
"The dudes buying houses and condos as rentals or flips are young 20 and 30-somethings who are gambling with high-leverage loans in-city and the suburbs. There is no real wealth behind it, and it isn't sustainable."
That's what I'm seeing. People like my coworker (who isn't making nearly enough to purchase a home in the area), are buying using massive leverage.
We're so far round the bend that we don't even blink when someone tells us that they've financed 90% of their home -- even though, by any historical standard, that kind of lending is insane. Today it looks conservative.
"We're so far round the bend that we don't even blink when someone tells us that they've financed 90% of their home -- even though, by any historical standard, that kind of lending is insane. Today it looks conservative."
...and there is the rub Mr. Bubble. Unless gov regulation steps in, I really don't see a change in lending practices happening. And what administration is going to put a regulation in place that they know will slow down the economy. Even if it's the right thing to do no one wants that black mark on their record.
as for the GBA: when it was put in place it was not intending to immediately slow, or stop housing starts. In was meant to eventually contain the sprawl. In truth Seattle is reaching capacity a lot sooner than expected. The GBA will not protect
Seattle from any short term (next 5 years) dips in the market. The GBA is more a protection long term against protracted decreases (10 years), and against lifestyle chnages. It is not a cloak of invincibility nor is it intended to be.
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