The Growth Management Act and Affordable Housing

By Daniel M. Warner

Probably the most telling complaint against growth control is that it will drive up the price of housing and squeeze out the poor and "young families,"1 and others whose well-being society ought to protect. "The development industry has repeatedly used the housing affordability issue to defeat growth controls on the grounds that anything that restricts the supply of housing, or pushes up the costs, will affect housing affordability."2

A basic axiom of the theory of supply and demand is that if you decrease supply, you increase cost. But, amazingly — because intuition says growth restraints would cause housing prices to rise — it is unclear what effect, if any, growth restrictions have on housing prices. The relationship between growth restrictions and housing cost is very difficult to determine because those areas with growth controls have such controls because the population is increasing rapidly: it is hard to tell if the controls cause the price increase or if basic market forces cause it.

The Los Angeles-based Reason Public Policy Institute examined the effects of growth management laws in Washington, Oregon, and Florida. The study — reported by the Washington Policy Center — found that growth management laws accounted for about one-quarter of the increase in Washington's housing costs from 1990-96. In 2000, they calculated, the median home price in Washington State was $125,310; without the GMA it would have been $120,245, about a $5,000 difference.3

There are, of course, many factors affecting affordability, including cost of land and raw materials, location, median income, household size, availability, demand, and the quality of the public schools.4 Compared to the Reason Public Policy Institute, other researchers have found little or no direct relationship between growth control and housing prices; some have suggested growth management policies may actually increase supply relative to demand.

Chris Nelson, who studied the question in Seattle, noted that housing prices tend to go up where sprawl is controlled, but partly because these are nicer places to live, and so there is more demand. Mike Flynn, the Washington Association of Realtors' vice president of governmental affairs agreed that growth management is only one element in affordable housing: "There are a number of factors to which housing is sensitive."5

And Arthur C. Nelson, et al., in a "discussion paper" from February 2002 concluded as follows:

Market demand, not land constraints, is the primary determinant of housing prices. The strength of the housing market is the single most importance influence on housing prices whether growth management programs are present or not. The effects of growth management policies on housing prices are much more complicated to isolate because of the variations in policy styles and implementation, the structure of local housing markets, the patterns of land ownership, and the stringency of other local regulations. Even research on the effects of urban growth boundaries (UGBs), focused largely on Portland, Oregon, suggests that UGBs can affect land values, but their effects on housing affordability remain in dispute. For example, economists have found that Portland's growth in housing prices is more attributed to increased housing demand, increased employment, and rising incomes than its urban growth boundary. Moreover, after an initial spike in housing prices between 1990 and 1994, attributed by economists to rapid increases in jobs and wages, Portland's housing prices since then have risen at about the national average. The reason may be that despite limiting the amount of land, Portland's growth management policies actually increase housing supply relative to demand.

We cannot emphasize strongly enough that housing prices depend upon the relative elasticity of demand, especially within metropolitan regions, than on any other factor, including growth management (Part VII, Conclusions).6

Another Washington State researcher concluded as follows: "[T]he growth management literature cannot prove a direct correlation between urban growth boundaries and the rising cost of housing, and concedes that market forces may be the stronger factor."7

Justin Phillips and Eban Goodstein, in an exhaustive article in Contemporary Economic Policy, examined the effect of Oregon's growth management act on housing prices in Portland. In that city, it had been claimed, the Urban Growth Boundary (UGB) was "precipitating an affordable housing crisis in Portland."8 Phillips and Goodstein found to the contrary.

Is Portland's UGB responsible for an affordability crisis in that city? The answer is, probably not. While the UGB has likely imposed upward pressure on prices, the results indicate that the effect has been fairly modest. The large price increases Portland has experienced over the past seven years most likely reflect the conventional housing market dynamic ... a speculative bull market riding on the back of an initial demand surge.9

Again, it is very difficult to determine whether increases in housing costs can be attributed to growth-management controls. The best that comes out of any of these studies — including the Washington Policy Center — is that growth control may have some modest effect but that mostly, it is not growth controls that drive housing costs up, it is growth — population increase.

There are various responses — if not solutions — to the problem of affordable housing. These include inclusionary zoning (requiring all new developments to have some percentage of housing geared to lower-income buyers — perhaps impact fees on those properties could be reduced); linkages (requiring the new commercial development contribute to an affordable housing fund or build suitable nearby housing); promoting community land trusts (typically a nonprofit entity that buys land and builds low-rent housing); flexible residential zoning (permitting granny flats). Allowing everything to be built up like Los Angeles is not a reasonable solution. Opening up large areas of vacant land for development would in no way solve the problem of affordable housing.10

Professor Daniel Warner joined the faculty at the College of Business at Western Washington University in 1978. He teaches business legal studies and is the author of a textbook on The Legal Environment of Business and numerous articles in law reviews. He was for eight years a Whatcom County Councilman and is active in local political and environmental organizations. Article copyright by the author and reprinted with permission.

Notes

1. George Lewis, Growth Management Act Continues Driving Up Housing Prices, Kitsap Peninsula Business Journal, June 13, 2003; available online at www.kpbj.com/moneynews/articles/2003-06-13-MNY-01.html (last accessed November 10, 2004):

The severest unintended consequence of the GMA is that it dictates an artificial scarcity of buildable land which drives up its price and therefore housing prices. Even with, and perhaps to some extent because of, today's record low interest rates, the stock of "affordable" housing — first homes that young families can afford — is all but non-existent in many parts of the state. The problem is especially acute in Kitsap, Pierce, King, Snohomish, Thurston and Clark Counties. And to a lesser extent in Whatcom, Island and Jefferson Counties. As housing prices began to skyrocket after the GMA was passed in 1990 and all previously zoned land had been built on, the problem worsened.

2. Eben Fodor, Better Not Bigger (1999), at 44.

3. Samuel R. Staley and Leonard C. Gilroy, Smart Growth and Housing Affordability: Evidence from Statewide Planning Laws, December 2001 (available online at: www.rppi.org/ps287.pdf. In a careful analysis, the bottom line for Washington State was this:

[H]ousing on a statewide basis became more affordable between 1995 and 2000 even with the state's growth-management law in place. However, housing would have become even more affordable had the state avoided the home price appreciation effects of the law: the affordability index would have increased to 1.26, or 5.1 percent, in the absence of Washington State's GMA [at p. 22]. ... The results of the empirical analysis suggest that as much as 26 percent of the housing-price increases at the county level in Washington State may be attributed to the GMA. Overall, the GMA slowed progress in increased housing affordability statewide by as much as 5.1 percent, since housing prices increased at a faster rate than income during this period [at p. 23].

The piece is a publication of the Washington Policy Center, a conservative (and Republican) think-tank. It describes itself as "providing high quality analysis on issues relating to the free market and government regulation" www.washingtonpolicy.org/aboutus.html. Last accessed November 10, 2004.

4. "Bidding wars for homes in the best school districts have pushed up the median price of housing for couples with children 79% between 1983 and 1998, handily outpacing income growth over the same period. (Prices for homes suitable for childless couples rose only 23% during that time.)" Maryanne Murray Buecher, "Parent Trap: Want to Go Bust? Have Kid, Educate Same," Time, September 15, 2003, B20.

5. Elizabeth Rhodes, "Corralling Sprawl," Seattle Times, November 3, 2002, E1.

6. Arthur C. Nelson, et al., The Link Between Growth Management and Housing Affordability: The Academic Evidence, Discussion Paper, February 2002; online at www.brook.edu/dybdocroot/es/urban/publications/growthmang.pdf (at "Executive Summary").

7. Mary E. Martin, The Impact of the Growth Management Act on the Availability of Affordable Housing in King County, Washington (2002) (Unpublished master's thesis, University of Washington); available online: http://eportfolio.bothell.washington.edu/MAPS/students/mmartin/pub_docs/students/mmartin/downloads/Capstone_Final6.doc. Last accessed November 10, 2004.

8. Justin Phillips and Eban Goodstein, "Growth Management and Housing Prices: The Case of Portland, Oregon," 18 Contemporary Economic Policy 334 (2000), 334, quoting from media reports in 1998. Phillips is a "policy analyst, U.S. Department of Justice," and Goodstein is an "Associate Professor, Department of Economics, Lewis and Clark College" (id).

9. Id. at 341-42.

10. In none of the growth debates that have roiled Whatcom County have any opponents of growth control suggested that abolishing such growth restrictions as now exist would have a significant effect on housing prices.

November 2004