1 1 2 3 8 9 11 12 Executive Urban-growth and The Portland The Politics of Lessons from Glossary of Endnotes Summary Boundary the Burgeoning Case Growth-boundary Portland Terms Growth-boundary Expansion Movement

contents

about RPPI

The Reason Foundation is a national re- Reason Institute (RPPI), a di- The Reason Foundation is a tax-exempt edu- search and educational organization that vision of the Reason Foundation, fuses cational organization as defined under IRS explores and promotes the twin values of theory and practice to influence public poli- code 501(c)(3). The Reason Foundation nei- rationality and freedom as the basic un- cies. The Institute's research draws upon ther seeks nor accepts government fund- derpinnings of a good society. Since 1978, economics, science, and institutional analy- ing, and is supported by individual, founda- the -based foundation has pro- sis to critique public policies and advance tion, and corporate contributions. Nothing vided practical public-policy research, new policy ideas in a variety of policy ar- appearing in this document is to be con- analysis, and commentary based upon the eas, including education, and strued as necessarily representing the principles of individual liberty and respon- transportation, the environment, urban views of the Reason Foundation or its trust- sibility and limited government. and local , ees, or as an attempt to aid or hinder the social services, and privatization and gov- passage of any bill before any legislative ernment reform. To that analysis, the Insti- body. tute brings a political philosophy that sup- rule of law, marketplace competition, Photos used in this publication economic and civil liberty, personal re- are Copyright © 1996. Photodisc, sponsibility in social and economic inter- Inc. Copyright © 1999. Reason actions, and institutional arrangements Foundation. All Rights Reserved. RPPIthat foster dynamism and innovation. about the authors

Samuel R. Staley, Ph.D., is Director of the Urban Futures Program (www.urbanfutures.org) at Reason Public Policy Institute (RPPI). As an economic-development consultant, researcher, and policy analyst, he has authored more than 50 articles, studies, and reports on urban-development issues and policy, including two books. His work has appeared in professional journals such as the Journal of the American Association, Planning and Markets (www-pam.usc.edu), and the Capital University Law Review. He has authored or co-authored the RPPI policy studies The Sprawling of America: In Defense of the Dynamic ; A Line in the Land: Urban-growth Boundaries, , and Affordability (with Jefferson G. Edgens and Gerard C.S. Mildner); and the Michigan Landscape (co-published with the Mackinac Center for Public Policy in Midland, Michigan); and Market-Oriented Planning: Principles and Tools (with Lynn Scarlett).

Gerard C.S. Mildner, Ph.D., is an assistant professor in the School of and Planning at Portland University in . Mildner’s research on urban-development and policy issues has appeared in conference proceedings as well as journals such as Land Economics and Transportation Quarterly and includes Scarcity by Design: The Legacy of City’s Housing Policy (Harvard University Press, 1992, co-authored with Peter Salins). Through the Center for Urban Studies at Portland State, Mildner’s research has covered urban-growth boundaries, , city-parking policy, impact fees, solid-waste dis- posal, and sports stadiums. He is also an academic advisor to the Cascade Policy Institute in Portland, Oregon. Executive Summary n High rates of and were associated with low overall levels of hous- rban-growth boundaries are emerging ing production; and Uas one of the most popular growth-man- n More than 80,000 single-family homes be- agement tools in the fight against came “unaffordable” to Portland residents . More than 100 and as a result of housing-price inflation. have adopted them, and statewide mandates for growth boundaries exist in Or- Several lessons were gleaned from Napa egon, , and . and Portland’s experience with growth boundaries: Urban-growth boundaries, however, have potentially large, if unintended, negative im- n Growth boundaries contribute to higher pacts on housing. The burden of these impacts housing costs, although the magnitude is will most likely be felt by low-, moderate-, and uncertain. Metro, Portland’s regional-plan- middle-income households since their hous- ning agency, could alleviate housing costs ing choices will be the most severely con- by releasing more low-cost vacant land strained. for development but chooses not to; n Growth boundaries encourage consum- An examination of housing-production trends ers to buy larger homes with fewer open- and home prices in Napa County, California space amenities such as private yards; found that: n Growth boundaries create new special- Housing production fell by 74.2 percent n interest groups that will oppose growth- when strict growth controls in Napa boundary expansion, including high-in- County, California were implemented, come hobby farmers who want to protect creating an effective countywide urban- their rural lifestyle; growth boundary; and n Recalls of local officials and the defeat of n Housing prices soared in rural parts of the new funding for the regional-rail system county as demand outstripped supply, in- suggests that public support for urban- creasing the price “premium” for rural growth boundaries in Portland may be housing from 16.3 percent in 1985 to 84.8 weakening; and percent over the county average in 1997. n Higher housing prices are contributing Similar impacts were found in Portland, Or- to concerns by low- and moderate-in- egon where a regional-growth boundary hems come households that the growth bound- in 24 cities and three counties. A review of ary works against their interests, weak- research and housing data found: ening overall support for regional-. n Portland now ranks among the 10 percent least affordable housing markets in the nation; n The average housing density has in- creased from five homes per acre to eight Urban-growth homes per acre while multifamily hous- Boundaries ing units makeup about half of all new building permits; rowth management has risen to the fore front of public debate in the United n Even with these increases in density, the G Portland area is expected to have a hous- States. Both Vice President Al Gore and Presi- ing deficit of almost 9,000 housing units dent Bill Clinton are promoting a “Livability by 2040; Agenda” for cities and encouraging so-called

urban-growth boundaries and housing affordability 1 “Smart Growth” initiatives to limit growth boundaries are not uniform and the suburbanization and revitalize central cities. data on their impacts are mixed. Public sup- for growth boundaries, however, contin- On the local level, one of the most popular ues to grow across the state, where 80 per- Smart Growth tools is the urban-growth bound- cent of the local initiatives with growth bound- ary, a politically designated line around cities aries on the ballot passed in November 1998. beyond which development is either prohib- Frustration with lost open space, traffic con- ited or highly discouraged. Growth boundaries, gestion, and overcrowded schools led more also called urban-limit lines or rural-limit lines, than 20 counties and 50 cities to adopt urban- exist in more than 100 cities, counties, and re- limit lines or green belts in the 1970s and gions across the nation.1 California, in particu- 1980s.2 In the 1990s, growth-boundary activ- lar, has emerged as one of the most prolific ity increased and proliferated. centers for this approach to growth control. Some California cities and counties are even While popular, the full consequences of adopt- shrinking their boundaries.3 A movement is ing these growth controls have not been fully afoot in Contra Costa County, just across the explored. While many are geared toward curb- bay from , to reduce its growth ing suburban development in outlying rural boundary and thwart development plans de- areas, growth boundaries can have unintended spite a projected deficit of 45,000 homes.4 The economic and social consequences. By re- City of Cotati in Sonoma County (north of San stricting land availability for new housing, Francisco) reduced the amount of developed growth boundaries could increase the price of and developable land inside its boundary by land and, ultimately, housing. As affordable almost one-third.5 housing disappears, economically vulnerable low- to moderate-income households suffer More telling may be the attempts by slow- the most. Even middle-income families may growth advocates to convert urban-service be at risk based on emerging evidence from areas—boundaries beyond which public infra- Portland, Oregon and California. structure services such as , sewers, and water will not be extended—into growth Thus, growth boundaries may be a poor boundaries. Sacramento County is a case in growth-management strategy, especially in point. Antigrowth interest groups are trans- areas concerned about housing affordability. forming the county’s urban-service area into Impacts such as the density versus affordability an urban-growth boundary by lobbying trade off are rarely discussed adequately in against approval for development projects the heat of local growth-management debates. outside the service area.6

The most troubling characteristics of urban- growth boundaries, however, may be the in- California and the equities they create between existing Burgeoning Growth- homeowners and low- and moderate-income families. boundary Movement The City of Napa in is an round zero in the growing support for example. Just north of San Francisco, Napa growth boundaries may be California. In G adopted a limit line in 1975 in an attempt to some states (e.g., Oregon, Washington, and cap the city’s at 75,000. Residen- Tennessee), growth boundaries were man- tial development was still allowed in rural ar- dated by a distant state legislature. Urban- eas, providing a relief valve for the residen- growth boundaries in California are the prod- tial-housing market. Then, in the early 1990s, uct of local efforts. As a result, California’s

82 Reason Public Policy Institute the county clamped down on new develop- with an apparent unwillingness of other cities ment. Residential-building permits plummeted in the county to annex territory and provide for by 74.2 percent from 1989 to 1996 as a mora- future growth, has had the effect of increasing torium on residential permits took effect in the housing costs and limiting the availability of county and a regional-housing recession took housing for working families. hold in the early 1990s.7 As the recession gave way to the current economic boom, building The case of Portland, Oregon, on the other hand, permits increased, but not as quickly as in provides an example of a pure urban-growth other parts of the Bay Area without growth boundary that has been in place on a regional boundaries.8 Well after the end of the reces- level over a longer period of time. Portland’s sion, building permits remain at half the lev- experience should provide more direct lessons els that existed before the county growth con- about the relationship between urban-growth trols were instituted. boundaries and housing affordability.

An affordability wedge between rural and ur- ban residents is also emerging in Napa County. As the growth controls took hold, the average The Portland Case value of a single-family home in unincorpo- rated areas of Napa County climbed 158.1 he State of Oregon implemented one of 9 percent to over $373,000 from 1985 to 1997. Tthe nation’s most comprehensive state- The average value of a new single- laws in the early 1970s. In Portland, a home in the City of Napa increased by less regional boundary has hemmed in 24 cities than half the rate in rural areas (66.8 percent), and three counties for 20 years and has be- but the rate of increase doubled after the come the linchpin to regional . county growth controls created an effective Portland uses its growth boundary explicitly 10 regional-growth boundary. Nevertheless, to increase housing density and redirect in- the housing-price “premium” for homes out- vestment into inner cities. Thus, the Portland side the more densely urbanized areas grew effort provides an excellent opportunity to from 16.3 percent to 84.8 percent over the examine the intended and unintended conse- Napa County average. quences of adopting growth boundaries.

Thus, growth boundaries potentially serve up While originally intended as a dynamic tool for a double whammy for homebuyers. First, re- addressing the needs of a city’s population, ducing land supplies through growth controls the growth boundary in Portland has made drives up housing prices. Then slow-growth planning for the needs of a growing popula- policies outside cities create an open-space tion far more complex. To more fully appreci- preserve that can be tapped only by high-in- ate the relationship between growth bound- come households. aries, housing prices, and housing choice, the following sections review the effects of growth Although the data for California and Napa boundaries in Portland, Oregon on: County are not definitive, they clearly suggest urban-growth boundaries can have the unin- n Housing cost and prices; tended impact of reducing the supply of hous- 11 n Housing density; ing. Moreover, the use of urban-growth bound- aries also suggests local growth controls pass n Developable land and infill; and the responsibility for accommodating future n Consumer choice in the housing market. housing demand and growth onto other com- munities. In the case of Napa County, the bound- The effects of growth boundaries on housing ary by the county’s largest city (Napa), coupled prices and consumer choice may create a po-

urban-growth boundaries and housing affordability 13 litical environment that may be difficult to sus- Housing-price trends have important implica- tain and further compound the negative, if tions for affordability. One local real-estate unintended, consequences of imposing a consultant estimates that, from the second growth boundary. quarter 1995 through second quarter 1997, housing-price appreciation alone pushed 80,000 single-family homes over thresholds A. Housing Costs in Portland and 13 Oregon of affordability. In other words, 80,000 fewer units were considered “affordable” in 1997 Since the passage of Oregon’s growth-man- compared to 1995. Meanwhile, from 1990 to agement laws, the cost of housing in urban 1997, just 6,450 single-family homes and 3,530 14 areas has increased significantly. Oregon’s multifamily units were approved. housing markets now rank among the nation’s least affordable in the nation and on the West Because the relationship between housing Coast (see Table 1).12 Eugene holds the dubi- prices and land supply is complex, simple ex- ous distinction of being the least affordable planations for Portland’s extraordinary hous- Oregon housing market, ranking among the ing-price increases are elusive. Metro has bottom 3 percent in housing affordability na- claimed that land supply is largely irrelevant tionwide, according to the National Associa- for understanding Portland’s recent housing- tion of Home Builders. Not far behind are Port- price surge, arguing that increased popula- land and Medford, both ranking among the tion growth is the primary factor influencing 15 bottom 10 percent. home prices.

Another policy goal of planning in Portland and Housing prices in Portland, however, are not the rest of the state is to meet the housing increasing in a neutral real-estate market: the needs of low- and moderate-income families. amount and quality of vacant land has been

HOUSING AFFORDABILITY FOR OREGON METROPOLITAN AREAS: FOURTH QUARTER 1998

Affordability National Percenile Regional Percentile City/MSA Index Rank* Rank Rank** Rank

Eugene-Springfield 30.4 185 99.5% 47 97.9% Medford-Ashland 38.5 182 97.8% 45 93.8% Portland- 38.7 180 96.8% 43 89.6% Salem 44.8 173 93.0% 37 77.1%

*Nation (N=186) **Western States (N=48)

Source: National Association of Home Builders, http://www.nahb.com. The affordability index is the NAHB’s “Housing Opportunity Index” (HOI) score and represents the share of new and existing homes that could be purchased by a family earning the ’s median-family income. Thus, lower HOI scores represent less affordable areas since the median family could afford to purchase a lower percentage of homes sold in the regional market. Therefore, lower rankings repre- sent less affordable areas. table 1

84 Reason Public Policy Institute falling for 20 years as a direct result of the and more people were competing for the same urban-growth boundary. As land becomes parcel of land. Thus, strict regulatory adher- more scarce inside the boundary, the in- ence to the growth boundary resulted in the creased competition for developable land in- largest differences in price. As Metro has be- side the growth boundary appears to be con- come even stricter in its adherence to mini- tributing to higher land prices.16 mum-density targets, land prices are likely to increase even further. These effects are evident in the Portland area’s largest suburban county. Washington County B. Housing Density is the second-largest county in the metropoli- tan area, but has the largest amount of new- Another important goal of growth boundaries home construction and the best data in the is increasing housing density within existing region on housing-lot prices. Lot prices for urban areas. Despite a national reputation as single-family houses in Washington County a growth-management success story, lagged inflation, as measured by the Con- Oregon’s planning system fell sufficiently short sumer Price Index (CPI) from 1985 to 1990, of this goal that many planners and the years the Portland area experienced a policymakers argued for “mid-course correc- housing recession (Figure 1).17 After 1990, tions” as early as the mid-1980s.23 Actual den- housing prices increased significantly. By 1994, sities inside the growth boundaries, for ex- home prices were one and one-half times ample, ranged from two-thirds to one-fourth greater than in 1985 (a 140 percent increase). below the levels permitted by local plans.24 Lot prices more than doubled in five years Although Portland had the highest-allowable while the CPI increased by 52.5 percent.18 densities, actual densities were one-third lower These trends significantly surpassed Metro’s than those allowed by local land-use plans.25 housing-price forecast, which predicted land prices would rise by 20 percent in real terms Portland nevertheless increased housing den- from 1995 to 2000.19 sities by putting more people on less land even though they were below planners’ targets. A glimpse of the growth boundary’s poten- Densities for new development increased on tial impacts on land prices became evident average from five homes per acre (one-fifth early.20 In 1980, just one year after Portland’s of an acre per home) to eight homes per acre regional-growth boundary was established, (one-eighth of an acre per home) from 1994 to an analysis of 455 purchases of vacant lots 1997.26 The amount of land used for new hous- for single-family homes found that land ing development has declined as multifamily prices inside the boundary were significantly higher than those outside the boundary.21 The housing units have increased from 25 percent changes in market price were tied to expec- of all building permits in 1992 to 49 percent in 27 tations by builders and developers about the 1997. likelihood the land could be developed for residential purposes. Even these density increases fall below the levels needed to meet Metro’s (the regional Land prices varied by how much local gov- planning agency) projected population in- ernments restricted development and devel- crease. At current trends, without an expan- opers believed those restrictions were bind- sion of the boundary, the Portland metropoli- ing.22 Rural-land values outside the boundary tan area will experience a 42,060 housing-unit fell as developers recognized its availability deficit by the year 2017.28 If densities increase for urban development was limited. Land val- to achieve those recommended in the Metro ues inside the boundary increased as devel- 2040 Plan, the housing deficit would still be opers recognized its potential for development 8,590 units.

urban-growth boundaries and housing affordability 15 This creates a problem for local planners: if sities. An examination of the Portland model densities are too low (and more land is used reveals another unintended effect of growth per household), the urban-growth boundary boundaries: the reliance on infill development will have to be expanded sooner than they contributes to higher housing costs and impacts predicted. In order to increase densities fur- the availability of affordable housing. ther and avoid expanding the growth bound- ary, Metro has recently implemented a man- As Metro pushes for more infill development, date for a minimum density of more than six vacant land within the growth boundary is units per net acre (which is creating new eco- disappearing. Vacant land inside the bound- nomic and political problems and trade offs).29 ary has fallen from 75,000 acres in 1985 to less than 55,000 today. Once environmen- C. Developable Land and Infill tally sensitive and otherwise undevelopable land is considered, the amount falls to less In order to achieve higher densities within the than 38,000 acres.30 While almost 40 percent urban-growth boundary, Metro and Portland of the land in the boundary was vacant in planners are relying on “refill.” Refill consists of 1980, the share of total vacant land repre- two elements: developing vacant land (infill) sented just 19.8 percent of the land by 1997, inside the growth boundary and redeveloping less than 14 percent when undevelopable existing property more intensely at higher den- land is considered.31

CHANGE IN RESIDENTIAL LOT PRICES VS. INFLATION IN WASHINGTON COUNTY

Source: Washington County Tax Assessor. figure 1

86 Reason Public Policy Institute Metro estimates Portland’s current refill rate households look at and suburban lo- at 25.4 percent.32 In other words, about one- cations more competitively. fourth of all housing units built inside the growth boundary are either infill or redevel- Higher-housing prices, on the other hand, may opment of existing property. Metro, however, also reflect a supply constraint. With the impo- also found that the rate of residential rede- sition of an effective growth boundary, con- velopment and infill was negatively related sumers have fewer housing choices than un- to the total housing built when the data were der a freely functioning land market since de- broken down by neighborhood.23 High refill velopers are more limited in the kinds of homes rates, it turns out, require higher home prices they can provide. Rural and semi-rural settings to justify the development of smaller and rela- for homes and communities will be reduced tively more-expensive parcels of land.34 In for all except the wealthiest families and long- addition, if homebuyers cannot trade off time residents. In this case, higher-housing home size for larger lots, they may invest in prices reduce the overall for resi- building bigger and more expansive homes. dents, since they must pay more for a home Thus, Portland was achieving a higher rate of that provides potentially fewer benefits (e.g., infill and redevelopment because land and smaller lots and denser living). Many house- housing prices were increasing. holds are buying what is available in a restric- tive housing environment as new homes on Inner-city Portland appeared to benefit from lots larger than one-fifth of an acre are prohib- these higher rates of redevelopment. From ited. Higher refill rates come at a cost: higher 1990 to 1995, inner-city neighborhoods in Port- housing prices, less affordable housing, and land experienced a substantial increase in less private open space in the form of yards. home-price inflation: the North, Southeast, and Northeast areas of the City of Portland D. Consumer Behavior saw their housing prices increase the fastest (Table 2). Home prices in North Portland Land, as the previous section discussed, is an doubled, rising from $41,300 in 1990 to important beneficial characteristic of a home. $83,800 in 1995 (in noninflation adjusted dol- Sometimes this land is privately owned (e.g., lars). The average home price among these back and front yards), and sometimes it is pub- cities increased from $97,684 to $152,700. lic open space (e.g., a neighborhood park). Not surprisingly, when land is abundant, people For those favoring growth boundaries, these prefer homes with larger lots. As housing prices trends suggest success. Higher refill rates and increase, homebuyers recalculate the benefits rebounding home prices in inner-city neigh- of different housing characteristics. Since borhoods should mean the goals of revital- houses usually provide important, high-prior- ization and increasing density are being met. ity benefits—bedrooms for personal privacy, shelter from the elements, kitchens, etc.— These observers, however, may be ignoring homebuyers will often choose smaller lots the trade offs implicit in these trends. Higher when home prices are high. Thus, growth housing prices are a double-edged sword. On boundaries influence the housing decisions by the one hand, housing demand is pushed in- families and other households as well. ward as land becomes more scarce on the fringe. Higher land prices create incentives Portland, Oregon provides an interesting ap- for higher-density development in existing plication of this housing “substitution” effect. and inner-city neighborhoods.35 As When Metro began implementing its land-use suburban neighborhoods achieve higher den- plan in the early 1990s, developers were al- sities and become less distinguishable from lowed to build more houses on each acre of inner-city neighborhoods, higher-income land as maximum densities allowed by local

urban-growth boundaries and housing affordability 17 codes increased. By the mid-1990s, the The Politics of Growth- effects on the local real-estate market were boundary Expansion becoming apparent. Researchers at Metro examined almost 8,000 home sales from Janu- etro claims that the urban-growth ary 1996 through June 1997 to determine how Mboundary is not intended to prevent households responded to higher housing housing development. Rather, the goal is to prices and whether a lot size/building size manage growth. The boundary was originally tradeoff existed. 36 Portland-area homebuyers, expected to be a dynamic, growth-manage- it turned out, did not buy larger lots as home ment tool: as land became more scarce, local prices increased for houses of the same size.37 officials and planners would expand the As home prices increased, homebuyers boundary to accommodate more growth. bought larger homes on smaller lots. For homes in different sizes categories (large vs. Portland politics is making expansion of the small), researchers also found that consum- growth boundary difficult. In 1997, Metro’s ers traded off lot size for home size.38 Of executive officer recommended a 7,000-acre course, these trade offs were made in an arti- expansion of the growth boundary to accom- ficially constrained and manipulated market. modate new growth.39 The Metro Council voted The growth boundary is a politically desig- down the recommendation five votes to two. nated barrier, not one chosen by consumers Metro eventually expanded the boundary by trading in an open market. 5,300 acres in 1998,40 but the expansion rep-

HOUSING PRICES BY PORTLAND SUB-MARKET, 1982-95

Prices Appreciation Rate Type 1995 1982-85 1985-90 1990-95

Lake Oswego/West Linn $244,400 -0.25% 54.55% 33.12% West Portland inner city $210,200 -2.27% 51.11% 46.58% NW Portland inner city $195,900 0.50% 44.78% 35.85% Tigard/Wilsonville suburb $174,900 -9.86% 61.65% 39.25% Milwaukie/Gladstone suburb $144,800 -4.79% 43.29% 54.04% Oregon City/Mollala suburb $144,500 10.60% 37.87% 62.00% Beaverton/Aloha suburb $141,700 -3.05% 44.52% 34.31% Hillsboro/ Grove suburb $134,500 -6.62% 34.05% 54.60% Gresham/Troutdale suburb $132,900 -5.97% 34.49% 49.49% NE Portland inner city $114,500 -9.15% 24.42% 78.35% SE Portland inner city $109,700 -8.83% 22.06% 85.30% N. Portland inner city $83,800 -17.48% 16.67% 102.91% Unweighted Averages $152,700 -4.76% 39.12% 56.32%

Source: Gerard C.S. Mildner, “Growth Management in the Portland Region and the Housing Boom of the 1990s,” Urban Futures Working Paper No. 98-1, Reason Public Policy Institute, May 1998, http:/ /www.urbanfutures.org. table 2

88 Reason Public Policy Institute resents about two years of the average land B. “Hobby” Farmers take-up through development.41 More signifi- cantly, the expansion was a compromise be- The growth boundary has had another unin- tween environmental activists, zero-expan- tended side effect. A new interest group con- sion advocates, and prodevelopment groups. sisting of noncommercial farmers, sometimes Even while local planners may favor a more called “hobby farmers,” has emerged that is dynamic approach to land supply within the highly resistant to expansions of the growth growth boundary, regional politics may pre- boundary. Many of these households appear vent its timely expansion. A close examina- to be circumventing Metro’s restrictive land- tion of the Portland case reveals that, once use policies by buying properties outside the implemented, growth boundaries make plan- growth boundary and calling them farms. ning decisions more difficult and political. As a Ninety percent of the farms under 160 acres result, responding to increased housing de- where new homes were authorized in the 44 mand and becomes a func- 1980s reported no farm receipts. Half of the tion of local and regional political forces, rather farm operations with new homes were in the than land-use planning. Willamette Valley, which contains the City of Portland and about 60 percent of Oregon’s resi- 45 Local politics is making growth-boundary ex- dents. By planting a field of Christmas trees pansion difficult in part because the planning or a large patch of strawberries, these land- process itself is creating new winners and owners have been able to get rural homebuilding permits under the exemption for losers. farmers. Ironically, by building their homes on large rural parcels, these hobby farmers are A. Low-income Households creating the exurban sprawl that many of Low-income households, for instance, were growth-boundary advocates wish to avoid. once considered big winners from statewide Hobby farmers are hostile to boundary expan- planning. Oregon’s planning law included a sions because higher-residential densities and plank supporting the housing needs of all resi- development of nearby open space would di- dents in the state, and many believed a prop- minish their quality of life. erly planned region would yield affordable housing.42 Strong demand for inner-city hous- ing, however, has pushed up prices in inner- city Portland neighborhoods faster than in Lessons from Portland suburban communities, displacing some low- everal events suggest that grassroots op- and moderate-income families. Sposition to is emerging as an important political force. Metro is expe- Low-income housing strategies such as riencing significant resistance to higher-den- inclusionary zoning are unlikely to significantly sity residential development and the proposed improve affordable housing. Portland has con- transportation plan by grassroots groups. For sidered an inclusionary-zoning program that example: would require developers to provide afford- able housing. If the plan had been enacted dur- n A regionwide referendum to fund the ing the 1990s, “affordable” homes and apart- region’s light-rail extension was rejected ments would have represented just two per- in November 1998; and cent of the units that “disappeared” as a re- n Residents of the suburban community of sult of escalating housing prices.43 Programs Milwaukie, Oregon recalled all city coun- such as the one considered by Metro would cil members that voted to accept Metro’s make little headway in improving affordability high-density zoning mandate to accommo- in the Portland metropolitan area. date future population growth.

urban-growth boundaries and housing affordability 19 Growth management in the Portland region n Third, growth boundaries contribute to is becoming less stable politically as new in- higher housing costs, although the mag- terest groups and coalitions emerge to sup- nitude is uncertain. Metro could help alle- port specific aspects of the regional plan. As viate housing costs by releasing more land inside the growth boundary becomes in- low-cost vacant land for development (al- creasingly scarce, housing prices have in- though it chooses not to). creased significantly. Portland still retains n Fourth, growth boundaries will encour- many of the characteristics of suburban liv- age the creation of new interest groups ing that the growth boundary was intended opposed to growth-boundary expan- to discourage. Ironically, achieving density sion. Local policymakers will be encour- targets may only be possible through high aged to maintain the boundary as a bind- housing prices that make expensive and inef- ing constraint on , opt- ficient parcels of land profitable to develop ing for increasing densities in existing through the private sector. areas rather than expanding the bound- ary significantly. While some believe a substantial amount of land still exists within the urban-growth bound- n Fifth, the political support for growth ary for land development, Metro is predicting boundaries and growth management in a housing deficit even if significantly higher general will change as the full conse- densities are achieved on current land. In fact, quences of the policies become evident. the remaining land inside the boundary is gen- Higher housing prices, for example, are erally less productive and more expensive to contributing to concerns by low- and develop. Combined with a political climate sup- moderate-income households that the portive of zero growth, Metro will not likely growth boundary may work against their expand the growth boundary significantly to interests. moderate upward pressure on housing prices. To avoid the unintended side effects of urban- Several lessons can be gleaned from Portland’s growth boundaries, state and local experience with growth boundaries. policymakers should consider alternative, market-based approaches to growth manage- n First, urban-growth boundaries can ment. Market-based approaches substitute a achieve goals such as encouraging higher regulatory approach to development that re- residential densities and infill, but these stricts consumer choice for one where the outcomes come at a cost. If the growth real-estate market and incentives are created boundary is successful, it will constrain to achieve the same goals. Examples of mar- vacant land and require housing develop- ket-oriented approaches include reforming ment on more-expensive land and on lots zoning ordinances to allow for market-deter- much smaller than consumers would oth- mined densities, allowing for administrative erwise prefer. review of development projects without sig- n Second, growth boundaries encourage nificant negative impacts on neighboring prop- consumers to trade off land for larger erty owners and the community more gener- homes with fewer open-space amenities ally, privatization or full-cost pricing for public such as private yards and reduce their over- infrastructure, and voluntary conservation all quality of life by constraining land sup- easements and privately funded purchase-of- ply and contributing to higher land costs. development rights to protect open space. ❑

108 Reason Public Policy Institute Glossary of Terms

Density: number of people or households per Low density: low number of people or house- acre of land. holds per acre of land. Single-family, detached homes with large lots are often defined as low : a strip of dedicated open space density, although the actual size of the lot is around cities where land development is pro- rarely specified. hibited except for agricultural, park land, and open-space uses. Metro: the regional planning agency over- seeing Portland’s growth boundary and the Growth management: the direction, control, implementation of the region’s 2040 long- channeling, or guidance of commercial and range plan. Metro’s board is the only elected residential development through public policy. regional government in the nation and is re- sponsible for regional transportation and Housing amenity: quality or characteristic land-use planning. of a home. Refill: the combination of in-fill development Housing-substitution effect: the trade offs and redevelopment of existing land in urban- consumers make among housing character- ized areas. istics such as lot size, bedrooms, garage ar- eas, bathrooms, etc. Urban-growth boundaries (or urban-limit lines): politically designated line around cities Infill: the development of vacant land in al- beyond which development is either prohib- ready urbanized areas with existing homes ited or highly discouraged. and buildings. Urban-service area: a boundary beyond Infrastructure: public services such as roads, which services will not be sewers, water, schools, etc. extended.

urban-growth boundaries and housing affordability 111 12 8 Janice Fillip, “Stretching theLimits,” 6 Staley,Edgens,andMildner, 5 For housingdeficitprojections,seePhilSerna, 4 Estimatebasedonknowngrowthboundariesprovided 1 ThisismorefullydiscussedinStaley,Edgens,and 8 BuildingpermitdatafromConstructionIndustryRe- 7 AsummaryofthistrendcanbefoundinStaley,Edgens, 3 WilliamFulton,“SlicedontheCuttingEdge:Growth 2 2Thehomebuildersexaminedinterestrates,median- 12 Increasingdensityisimpliedinadoptingthegrowth 11 Ibid. 10 ConstructionIndustryResearchBoard,Burbank,Cali- 9

Reason Public PolicyInstitute endnotes pacts,” in “The CaliforniaCoastalCommissions:EconomicIm- land-use regulationincoastalareas.SeeH.E.FrechIII, long historyinCalifornia,beginningearnestwith ciation ofNorthern California,June 1998, Public Policy, 1982), pp.259-274. Johnson (SanFrancisco:PacificResearchInstitutefor Mildner, Samuel R.Staley,JeffersonG.Edgens,andGerardC.S. vice boundaries.Foradiscussionofthedistinction,see Pennsylvania. egon, Washington, California,andLancasterCounty, California. MostofthesegrowthboundariesareinOr- Program, ReasonPublicPolicyInstitute,LosAngeles, by SamuelR.Staley,DirectoroftheUrbanFutures Mildner, search Board,Burbank,California. and Mildner, tions, 1993), pp.113-126. Jay M.Stein(NewburyPark,California:SagePublica- Management andGrowthControlinCalifornia, October 1999). No. 263(LosAngeles,ReasonPublicPolicyInstitute, H. Carson, H. Carson, metropolitan area.SeealsothediscussioninRichard purchased byafamilywiththemedianincomein area todeterminewhatproportionofhomescouldbe family income,andhomesalesineachmetropolitan local housingmarket. ing lotsizesandincreasingthemultifamilyshareof achieve morecompactformsofdevelopmentbyreduc- Portland thatareexplicitlyusinggrowthmanagementto This goalhasbecomemoreexplicitinareassuchas This increasestheresidentialdensityofneighborhoods. neled intoexistingareasthroughredevelopmentofinfill. graphic boundary,investmentisexpectedtobechan- boundary. Bypreventingdevelopmentoutsideageo- fornia. this projectcanbefoundinStaley,Edgens,andMildner, ruary 1998), pp.47-48. A moredetaileddiscussionof A Line in the Land the in Line A ing toincreasedhomeappreciation.However, compa- causes demandforexistinghomesto increase,lead- fect onthesupplyofhousing.Lower-housing supply that, ifstringentenough,couldhaveasignificantef- some leveloflocalzoningandbuildingcoderegulation use managementisunique,allmetropolitanareashave ing affordability.AlthoughtheOregonsystemofland- dence ofwhetherurban-growthboundariesreducehous- housing-price appreciationisonlycircumstantialevi- Oregon: NewMeridianPress, October1998). Rapid Smart Growth, and Housing Affordability Housing and Growth, Smart ley Housing Needs Assessment Needs Housing ley Policy, Decontrol, and the Public Interest Public the and Decontrol, Policy, Management: A Line in the Land: Urban-growth Boundaries, Urban-growth Land: the in Line A A Line in the Land the in Line A Resolving the Housing Crisis: Government Crisis: Housing the Resolving Paying for Oregon’s Growth Oregon’s for Paying A Line in the Land the in Line A These numbers donotincludeurban-ser-These numbers The Planning Challenge of the 1990’s the of Challenge Planning The . . A Line in the Land the in Line A . Growthcontrolshavea , HomeBuildersAsso- Comstock’s , ed.M.Bruce , PolicyStudy Table C. (Beaverton, ” in Growth Tri-Val- . (Feb- , ed. 5Metronotesthatlandpricesarerisingasfastorfaster 15 Ibid. 14 7Washington Countyisthemost-populoussuburban 17 Gooddataonlandpricesaredifficult toobtain. The 16 3SeethediscussioninStaley,Edgens,andMildner, 13 per year.SeePortlandMetro, tion isincreasingbetween2.0percentand2.5 moderate. ForthePortlandmetropolitanarea,popula- and newhousingsupplycomesonlineprices building industryadjuststohigherlevelsofdemand These effects,however,shouldbetemporaryasthe nesses; andrisinghouseholdincomes. employment growth;investmentinnewhigh-techbusi- through a1990 Portland’s ballot-box initiative; rapid precipitous declineinpropertytaxesOregonbegun the nationaldeclineininterestratessince1989; the contributing totheboominhousingprices,including: in additiontothegrowthboundaryareprobablyalso Lake City,Phoenix,andSanDiego.Anumberoffactors than incitieswithoutgrowthboundaries,includingSalt bias andshouldbeminimizedoveranumber ofyears. tions donotcreateeitheranupward ordownward However, errorsduetothelownumberofobserva- might beunrepresentativeoftheclassasawhole. transaction volumes,theaverage-percentageincrease for property withintheseproperty classes. With low interpreted asanaverage-percentagepriceincrease ratios areusedtoadjustassessmentsandcanbe sessed valueforeach classofproperty. These determines anaverageratioofsalespricetoas- ton County Tax Assessor reviewssalespricesand with thegreatestnew-home production. county inthefour-county Portland areaandthecounty ers’ costinformation. data areaperlotpriceestimatederivedfrombuild- single place,the Antelope Valley, andtheLas Vegas the LosAngelesdatacomefromdevelopmentina from verysmallornarrowsamples.Forexample, cities. Muchofthisinformation,however,isdrawn ULI MarketProfilestocomparePortlandother Metro staff usesdatafromtheUrbanLandInstitute’s one thirdasfast(22.0percentduringthisperiod). ing cityamongthecitieslisted—increasedbyabout 1995, housingpricesinLas Vegas—the fastestgrow- housing pricesincreasedby61.5 percentfrom1990 to appreciation duringthesameperiod. While Portland’s cities didnotexperiencesignificanthousingprice and Orlando(about2.7percent). nix (about3.0percent),Riverside2.7 such asLas Vegas (about6.5percentperyear),Phoe- average, thisislessthanothermetropolitanareas December 1997, p.42. While largerthanthenational Growth Boundaries,” See GerritJ.Knaap,“ThePriceEffectsofUrban the differenceswithinPortlandmetropolitanarea. able, althougheconomistGerritKnaaphasexamined a metropolitan-widebasisaregenerallynotavail- rable dataontheharshnessofland-useregulation have hadsuchaneffect. property tax-cut measures,beginningin1991, may Portland’s case,theimplementationofaseries tractiveness oramenitiesofametropolitanarea.In tions inlocalpoliciesthataffecttheunderlyingat- velopment. Finally,theremaybesignificantvaria- the availabilityoflocallandsupplyforhousingde- terrain, orpublicownershipoflandthatmayrestrict politan areasmayhavesignificantwater,mountain, (February 1985), pp.26-35.Inaddition,somemetro- Line in the Land the in Line , pp.17-19. Land Economics Land Urban Growth Report Growth Urban These fast-growing , vol. 61,no.1 The Washing- A , 18 We have adjusted the price index by the Consumer quently conducted by Metro found 55,000 vacant acres. Price Index and report inflation-adjusted price indices. See the discussion in Mildner, “Growth Management in This adjustment shows that about 20 percent of the the Portland Region and the Housing Boom of the 1990s.” increase in lot prices over the 1990-95 period was due 31 Ibid. Metro estimates that 15,950 acres are unbuildable to inflation.Thus, lot prices in Washington County grew because they are in flood plains, environmentally sen- by 79 percent in inflation-adjusted terms. sitive areas, have steep slopes, or are part of a 200 foot 19 Gerard C.S. Mildner, “Growth Management in the Port- river buffer. Another 15,080 acres will be needed for land Region and the Housing Boom of the 1990s,” Urban streets, schools, parks, churches and other public fa- Futures Working Paper No. 98-1, Reason Public Policy cilities. Thus, just 38,370 acres are available for resi- Institute, May 1998, http://www.urbanfutures.org. dential, commercial, and industrial development within the growth boundary. See Portland Metro, Urban Growth 20 Gerrit J. Knaap and Arthur C. Nelson, “The Effects of Report, December 1997, pp. 11-17. Regional Land Use Control in Oregon: A Theoretical and Empirical Review,” The Review of Regional Studies, 32 Sonny Conder, Residential Refill Study, Growth Man- vol. 18, no. 2 (1988), pp. 37-46. agement Services Department Technical Report, Port- land Metro, February 10, 1999. 21 Knaap, “The Price Effects of Urban-growth Boundaries 33 Conder, Residential Refill Study. in Metropolitan Portland, Oregon,” pp. 26-35. 34 Ibid. 22 The growth boundary was new enough that the 20-year supply of vacant land provided little constraint on de- 35 Ibid. velopment. Land is converted to residential uses as 36 Sonny Conder and Karen Larson, “Residential Lot Val- local zoning boards permit development. See Knaap, ues and the Capital-Land Substitution Parameter—Some “The Price Effects of Urban-growth Boundaries,” p. 33. Recent Results from the Portland Metro Area,” Growth 23 Jerry Weitz and Terry Moore, “Development Inside Ur- Management Services Division, Portland Metro, un- ban-growth Boundaries: Oregon’s Empirical Evidence of published paper, May 1998. The sample consisted of continuous Urban Form,” Journal of the American Plan- 5,500 records from Clackamas, Multnomah, and Wash- ning Association, vol. 64, no. 4 (Autumn 1998), p. 427. ington Counties in Oregon and 2,200 records from Clark County, Washington. 24 Deborah A. Howe, “Growth Management in Oregon,” in 37 Ibid., p. 6. Conder and Larson speculate that this may be Growth Management: The Planning Challenge of the the result of smaller household sizes and the increase 1990’s, ed. Jay M. Stein (Newbury Park, California: in multiple-income households. Sage Publications, 1993), p. 70. See also T. Moore and A.C. Nelson, “Lessons for Effective Urban-containment 38 Ibid., pp. 6-7. The estimates ranged from 0.642 to 0.8, and Resource-land Preservation Policy,” Journal of Urban where 1 represents a 1:1 willingness to trade-off lot Planning and Development, vol. 120, no. 4 (December size for home size and 0 represents no substitution. In 1994); V. Gail Easely, Inside the Lines , Planning Advi- other words, a ratio of 1 would imply that, as home sory Service Report Number 440 (, : prices increase, a 10% increase in home size would be American Planning Association, 1992). equivalent to a 10% reduction in lot size.

25 Howe, “Growth Management in Oregon,” p. 65. 39 Mildner, “Growth Management in the Portland Region and the Housing Boom of the 1990s.” 26 Portland Metro, Urban Growth Report Addendum, Au- 40 “Metro Council’s Expansion gust 1998, pp. 14-15. Decisions,” http://www.metro.dst.or.us/growth/ugbursa/ 27 Ibid., Figure 13, p. 15. has declined ugbupdate.html. from 2,900 acres in 1995, to 2,300 in 1996, to 1,700 in 41 Local real-estate consultant Jerald Johnson estimates 1997. The share of multifamily housing units among land take-up of 2,850 acres per year. See Jerald Johnson, approved units tends to vary considerably among and Hobson, Johnson, and Associates, memorandum dated within metropolitan areas. See Gerrit Knaap and Arthur October 24, 1997. This estimate is higher than Metro’s C. Nelson, The Regulated Landscape: Lessons on State estimate of about 2,000 gross buildable acres per year. Land Use Planning from Oregon (, Massa- See Portland Metro, Urban Growth Report Addendum, chusetts: Lincoln Institute of Land Policy, 1992), pp. p. 14. 87-91. 42 This was Goal 10 in the statewide growth-management 28 Portland Metro, Urban Growth Report Addendum, Fig- law. See Gerrit J. Knaap, “Self-Interest and Voter Sup- ure 2, p. 3. This includes development of new land, port for Oregon’s Land Use Controls,” Journal of the infill, and projected redevelopment of existing land. American Planning Association, vol. 53, no. 1 (Winter 1987), pp. 92-97; Gerrit J. Knaap, “The Political Economy 29 Section 3.07.120 of Metro’s function plan establishes of Growth Management in Oregon.” minimum density criteria of between 5,000 and 6,500 square foot lots and that “no development application . 43 For homes, the affordable housing threshold was pegged . . may be approved unless the development will result at $125,000. For apartments, the threshold was $500 in the building of 90 percent or more of the maximum per month. Jerald Johnson, “Issues Associated with the number of dwelling units per net acre permitted by the Imposition of Inclusionary Zoning in the Portland Metro- zoning designation for the site.” Section 3.07.810 states politan Area,” Hobson, Johnson, and Associates, Port- “All cities and counties within the Metro boundary are land, Oregon, unpublished paper, December 1, 1997. hereby required to amend their comprehensive plans 44 Arthur C. Nelson, “Preserving in the and implementing ordinances to comply with the provi- Face of : Lessons from Oregon,” Journal of sion of this function plan within twenty-four months of the American Planning Association, vol. 58, no. 4 (Au- the effective date of this ordinance.” tumn 1992), p. 479. 30 An initial survey by Metro estimated vacant land had 45 Nelson, “Preserving Prime Farmland in the Face of fallen to 50,000 acres. A new land inventory subse- Urbanization,” p. 479.

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