Home prices are still booming, at least in Puget Sound: they jumped 13 percent in the region last year, at least 4 times as fast as inflation. A Seattle Timesarticle reporting on the trend explains it using Economics 101 logic: many buyers and few sellers. Makes sense. Scarce supply plus high demand usually brings about rising prices.
But then the article hints at a common explanation for restricted supply (and hence higher prices), "lack of buildable land." Something seemed fishy about this explanation, so I did some poking around. First, I compared trends in growth around the region (sprawling versus density-increasing). Then, I took a look at where home prices increased fastest, over the last year, within the region.
What I discovered was a little surprising to conventional wisdom.
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A few years ago, Sightline compared growth trends (pdf) in King, Snohomish, and Pierce Counties from 1990 to 2000. King was the clear leader: 66 percent of its population growth was accounted for by growth in dense neighborhoods (places with more than 12 people per acre). Pierce was the clear laggard: 28 percent of its growth occurred in the lowest density suburbs (with only 1 to 5 people per acre). By contrast, both Snohomish County and King County had fewer people in low density suburbs in 2000 than in 1990, primarily because places that were once low density added people and became medium density (5 to 12 people per acre).
Moreover, of the three counties, Pierce County is by far the least stringent enforcer of the growth management boundaries. In 2000, less than three-quarters of new housing permits went inside the growth boundaries (versus 84 percent in Snohomish County and 95 percent in King County).
But despite Pierce County’s predilection for low density suburban growth and rural land consumption, housing prices rose faster there last year (19 percent) than they did in King County (15 percent) or Snohomish County (14 percent). So, at least last year, housing prices rose substantially faster in the most sprawling county.
In fairness, housing prices are still lowest in Pierce—and I suppose someone could argue that’s because of the county’s limited limits on suburban growth. The Seattle Times didn’t report on price increases by city in Pierce County, but it did break down price increases by region within King County. And that was interesting too.
Consider the two regions of King County with the most buildable land, the Eastside and southeast King County. On the Eastside, prices are the highest in the county; in southeast King County, prices are the lowest. On the Eastside, prices rose almost exactly as fast, in percentage terms, as the city of Seattle where there’s virtually no new buildable land at all. Southeast King County had the slowest growth in prices. North King County, which has a lot of medium density suburbs, had by far the fastest growth in prices—25 percent in one year.
Add it all up and what do you get?
Right. It’s a head-scratcher. There’s no obvious correlation between trends in sprawl and trends in prices, at least in the Puget Sound region last year.
Surely, price increases are driven by a combination of factors—supply, current prices, and desirability. But it is not at all clear to me that new buildable land is a driving force in how home prices increased last year. If it did, how could you explain Pierce County having the fastest price increases? Or how could you explain the Eastside and Seattle growing at the same pace? (These are not rhetorical questions, by the way. I would love to hear a cogent explanation.)
The problem with the buildable land theory, it seems to me, is that it doesn’t account for the large potential for in-fill and increased density in already built-up areas. Supply is not necessarily restricted by growth boundaries because there is ample opportunity for townhouses, apartment buildings, condos, duplexes, mother-in-law apartments and the rest. And in the Northwest’s comparatively low density cities (compared to cities in the East or in Europe), there is plenty of room for in-fill.