Update 6/5/07: A couple of changes made to the orginal post.
When Measure 37 was up for a vote in 2004, supporters claimed that Oregon’s planning laws were so draconian that they reduced property values by $5.4 billion per year. That eye-popping figure may be one of the central reasons why voters were inclined to support the measure. (Voter support has since severelyevaporated.) As it turns out, however, that $5.4 billion cost to Oregon’s property owners was a chimera.
To unveil the $5.4 billion illusion, Georgetown University’s Law Center just published a rigorous empirical study of trends in Oregon property values and found that all those land-use regulations have cost, well, not much at all. In fact, they may have added value, at least on average.
I won’t walk blog readers through the whole study, but the Georgetown report should be required reading for those following the issue closely: it represents by far the best-researched examination of the question to date.
Perhaps the most damning finding is one of the simplest: a comparison between property values in Oregon and other states from 1965 to 2005. As it turns out, Oregon’s highly-regulated property slightly outperformed values in neighboring California and Washington, though it lagged Idaho by a little. Oregon also outperformed the national average.
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And in an appendix the report also contains an especially a detailed comparison between similar counties in Oregon and Washington spanning several decades. The comparison is apt since there were very similar economic and demographic forces at work in both Northwest states, but divergent growth management policies for most of the period (especially prior to the mid-1990s, when Washington’s growth laws went into effect). It turns out that Oregon’s property value appreciation does at least as well as Washington’s and perhaps a little better.
As I said, the Georgetown study is the most complete to date. But I thought it was especially interesting because during the “property rights” ballot measure mayhem of 2006, I wrote a blog post describing some research that a UW extension student was doing on property values in King County, Washington. The result was pretty much the same: properties in highly regulated areas did as well, or maybe better, than properties in lightly regulated areas.
But how is that possible? How can restrictions on property increase value? Well, you’ll have to read the report for a full explanation. But the simple answer is that while growth regulations may decrease the development potential, they can raise values through amenity values, scarcity, tax reductions, and agricultural protections just to name a few.
Now, it’s worth remembering that this report doesn’t refute every possible argument for regulatory takings laws like Measure 37. It doesn’t fully address, for example, whether growth laws are fair to each and every individual. What it does prove—rather clearly, in fact—is that, on average, Oregon’s smart growth laws did not cause an undue reduction in property values. Therefore, Measure 37 “fixed” a problem that never existed in the first place. And that “fix” is coming at an awfully high price—not only to land-use, but also to community and economic certainty, as Sightline has detailed elsewhere.
Read the full study here (pdf).
Eric,As you may know I’m closely impacted by the costs and benefits of regulation, after years of planning I just submitted to King County plans to build a home on 5.5 rural acres – partially financed by a land investment of another parcel. From what I could tell the KC CAO had a temporary chilling effect on land prices which then took off again. Smart regulation and restrictions in my opinion does help appreciation – especially for lots that are not heavily impacted by critical areas.That being said, we all pay the burden for the costs incurred as well. We may have a measurable $50,000 regulatory burden (some examples being septic design overkill, cost of Critical Areas Reviews, paying a $500+ a year desk fee to keep an old permit open, seemingly high costs of DDES inspections, a permit system that still relies heavily on paper and duplication of effort, etc. I share my cost tabulations once this is over, and in my case there are also hundreds of hours spent lobbying, creating a rural stewardship plan etc. It adds up and some here feel its a “rural tax” both emotional and financial that urbanites don’t have to pay. There is some truth in that. So do we write this off as a necessary evil or do we look at this and say if regulation works it really needs to be smarter, more efficient and easily implementable – if not fair? (I’m thinking of the wetland rating rules as one example after getting an earful from one of the county engineers who has to implement. I’m complicit here as it sounded good on paper at the time.)Also does regulatory cost impact the calculus of affordable housing? Is appreciation always a good thing?
Regulation of land use provides security in land values and in quality of life. Regulation against pollution has a net public benefit of 7x costs to individuals/corporations. We know regulation works. In Arie’s case, he is living uphill in a watershed that drains to an impaired water body and won’t be getting any better as population increases. In other cases, though, it is not clear growth boundary regulation diminishes the ability for ordinary folk to afford a house – the reason for growth boundaries is rapid growth after all and that growth raises property values. In a nutshell, UGBs likely do not reduce the stock of affordable housing. UGBs in Western WA were shown to create leapfrog development in King and Pierce Cos in the 90s and early Naughties, when policies were changed to decrease this growth; this leapfrog development affected property values and increased the regulation that Arie decries, in order to ameliorate the impacts of human development on ecosystems in Puget Sound. Is regulation a necessary evil, does it impose costs, does it need to be smarter? Yup. But it’s better than the alternative.
Eric de Place
Thanks for weighing in, Arie. As usual, your experience as a landowner in a highly-regulated area is a good one for us all to keep in mind. I can’t pretend to sort out all of the various policy and implementation details that you have to deal with. But I wonder if for dicussion’s sake we can seperate out two strains of the problem: 1) the growth laws themselves; 2) the implementation and bureaucracy that attends to the regulations. It seems to me that the laws themselve are mostly okay, at least in their broad contours. But it also seems that their implementation is rife with uncertainty, expense, redundancy, perverse incentives, and so on. If my distinction is right, then it’s good news in the sense that we don’t need a radical overhaul of the GMA or supporting policies. But it’s bad news in the sense that there appears to be serious bureaucratic entrenchment and an unreasonably dense thicket of reporting and filing. In the interest of basic fairness—not mention preventing a revival of 933—we all need to figure out how to implement the laws more efficiently and simply—and more cheaply too. I’ll be interested to hear how it all plays out for you. I’m sure you’ve got one or two ideas about how to fix things. Also, yeah, the appreciation thing is a whole ‘nother can of worms. Clearly rapid appreciation isn’t always a good sign—especially at recent astronomical rates—and I’m not trying to make that case. But I do think the Georgetown study does a good job of defeating a key premise of the M37 (and 933) supporters: that, in aggregate, growth regulations reduce property values.
Eric hit the nail on the head. My criticism is only about execution. I’m not against regulation, but when we get it wrong enough that “fairness” and common sense become legitimate issues it backfires. Related topic, do we need to take more initiative on affordable housing? Some of the http://www.itsapriority.com/ jargon sounds good, I’m dubious (and uninformed) about the details.
I just so happen, in my new digs here, to be writing the template for our zoning code/development regs overhaul. It passed a major test today and has another one Tuesday 5th. Of course, I think its wonderful, but myself and my assistant are writing it such that it is flexible and amenable to different areas around town. It’s a ton of hard work but more and more cities are doing it (our implementation is a step ahead of most). We’re hoping it cuts review time by 40-50%.So, relief is on the horizon. I think what we’re doing here will catch on and I plan on presenting it next year. Whether or not unincorporated areas can do it is another story, as these areas typically are underserved with staff and I doubt it’ll happen in KingCo and PierceCo any time soon. I think clarification is in order for growth regulations – Private Property Rights advocates claim that inside UGBs scarcities are created and prices rise beyond affordability. Outside UGBs prices fall due to inability to develop. This ties in with Arie’s question about affordable housing, and I say yes. Where folks are trying to mandate affordable housing its not working, because of zoning laws. I tried to overhaul them in Buckley because they don’t work for affordable housing, but got a lot of pushback because of the fear of lowering property values. Folks tend to move to a place then advocate for zoning that protects their property values, which is anathema to affordability. So you have to work on reg’lur folk first to change zoning laws, then you have to change the zoning laws to allow smaller lots/houses. I’m all for more initiative. A-men.
Dan, when you talk about push-back from neighbors, I imagine this is in reference to larger housing projects. Do you think that concentrating low income earners is likely to allow them upward mobility? Or, are such projects more like corals?On an adjacent note—Clark started a thread at the beginning of the week about Cap & Trade, which shares a policy similarity with UGBs: place limitations on supply. I would think that until housing supply stays ahead of demand for a good long while, supply at the bottom end will be insufficient, if unfunded/supported by the state.
Dan, when you talk about push-back from neighbors, I imagine this is in reference to larger housing projects. No, bh, it was in response to provisioning duplexes and townhomes mixed into the neighborhood, as I never offered large multifamily as I knew it would never fly. The fear is of renters and lower-income (smaller lots with smaller houses) being next door. Wrt supply, zoning regs need to be loosened to allow smaller lots, mixed-use (where the market will allow), townhomes, etc. to provide supply. UGBs seek to provide supply in certain areas, but the failure in WA was that many localities didn’t change their zoning to allow smaller lots. Why? That brings the poor people in, which may lower your property value, hence politicians were reluctant to enact such zoning changes, because their constiuencies were against it. People make zoning laws and these laws make insufficient supply lower down the socioeconomic ladder.