Myths & Facts About Oregon’s Urban Growth Boundaries

We've heard a lot of talk lately about Oregon's urban growth boundaries (UGBs). Unfortunately, much of it is simply not true, and some people are spreading falsehoods and distortions for political reasons. We hope this fact sheet provides important information for anyone evaluating urban growth boundaries as a policy tool.

Myth: UGBs Cause Radically Increased Home Prices

Fact: Two independent studies found Portland's UGB is not causing home prices to increase
A 1998 study examining the relationship between the UGB and housing prices, conducted by Eban Goodstein, a Professor of Economics at Lewis and Clark College, concluded: "Is Portland's UGB responsible for an affordability crisis in that city? Our answer is probably not." (Growth Management and Housing Prices: The Case of Portland, OR, July 2000)

The Spring 2000 Journal of the American Planning Association also suggests UGBs don't have a significant impact on housing affordability (Rolf Pendall, "Local Land Use Regulation and the Chain of Exclusion".) Pendall writes: "According to this study, permit caps and growth boundaries, often modeled as supply constraints that will inexorably elevate housing prices, did not consistently reduce housing growth in the 1980s. Neither did they have any consistent average effect on housing unit types, tenure, or affordability. . ."

Fact: The price of raw land is a small fraction of a home's price in Oregon
A home price includes many factors: raw land, land improvements, home design, home construction, financing, and so forth. The 1999 Oregon Housing Cost Study (OHCS), sponsored by the Oregon Building Industry Association, the Marion-Polk Building Industry Association, the Oregon Association of Realtors, local governments, and others, examined the impact of these various factors on home prices.

According to the OHCS, the price of raw land—the part of the home price supposedly affected by UGBs—is currently about one-seventh of the price of new homes in Portland, only 7% in Eugene-Springfield and just 3% in Salem. That means that 86% of the price of a new home in Portland has virtually nothing to do with the supply of land.

Fact: Unlimited land supply does not assure affordable housing
If sprawl and unlimited land supplies assured affordable housing, why do average homes in Los Angeles cost $30,000 more than in the Portland region? Why do average homes in sprawling Orange County cost $75,000 more than in the Portland metro region? Why have home prices skyrocketed in sprawling Denver and Salt Lake City?

Fact: Recent increases in housing cost include many factors, many of which are more significant than changes in land price
According to the Oregon Housing Cost Study, the median home price in the Portland area rapidly increased from 1991 to 1998. Yet in looking at specific developments, the increase in raw land costs was only $15,704 of the total increase, less than the $25,317 increase in hard and soft land costs (e.g. installing water and sewer lines, utilities, system development charges, architecture fees.) In Eugene-Springfield (which has a UGB) the modest increase in land costs, $1,778, was dwarfed by the increase in the cost of building the house itself, $18,772. In Salem (which has a UGB), land costs rose by only $1,542 while hard and soft land costs rose by $21,670 and the cost of building the house rose by $12,791.

Fact: Recent rapid land price increases are mainly caused by boom economics
The increase in housing prices in the Portland metropolitan area precisely tracks the region's growth in employment and population. "[M]ore conventional demand side housing market dynamics explain housing price increase in Portland. Since the early 1990s, the region has enjoyed above average employment growth. . . " (Growth Management and Housing Prices: The Case of Portland, OR). At any rate, the increase in Portland's housing prices has slowed recently relative to other Western states, as those states' economies are improving (Oregon Housing Cost Study).

Fact: Home builders are choosing to build more expensive homes
Finally, the Oregon Housing Cost Study found home builders are choosing to build more expensive units instead of lower cost houses to reduce their risk.

Myth: The UGB Makes Portland One of the Nation's Least Affordable Places to Live

Fact: This "factoid" is based on thoroughly discredited statistics
This claim is based on the affordability rankings put out by the National Association of Home Builders (NAHB). These rankings have been thoroughly discredited. Even Oregon Building Industry Association lobbyist Jon Chandler was forced to admit there is no good information linking UGBs and home prices. The independent newsweekly Willamette Week covered the story: see http://www.wweek.com/html/politics011399.html

For the second quarter of 1999, NAHB ranks Portland's home affordability as 177th out of 184. But at 175th place, i.e. slightly more "affordable," is San Diego, where average family salary is virtually identical to Portland's ($52,500 vs. $52,400), but where homes cost 25% more than in Portland.

Fact: Portland median home prices are similar to, or lower than, comparable cities
The statistics from NAHB's own website show the median price for a Portland home in the second quarter of 1999 was $160,000, compared to $160,000 in Denver, $195,000 in Seattle, $203,000 in San Diego, $346,000 in San Jose, and $400,000 in San Francisco. The western U.S. tends to be the most expensive area in the country for housing.

Myth: Oregon Housing is Relatively Expensive

Fact: Oregon's housing is relatively affordable for renters
The State of the Nation's Housing: 1999, published by Harvard University's Joint Center for Housing Studies, found Oregon (whose 240 cities all have urban growth boundaries) relatively affordable. Oregon was in the middle of the pack nationwide in the number of full-time job incomes needed to rent a typical two-bedroom apartment, and the cheapest among west coast states (Washington, California, Oregon, and Alaska).

Fact: Oregon's housing is relatively affordable for buyers
Home prices in the Portland area are still below the average sale price in the western region and home prices in Eugene, Salem and Medford were below the average price for the nation as a whole. (Oregon Housing Cost Study) According to the National Association of Home Builders, only 35% of the houses for sale were affordable by the median household income in the Portland area. But according to the Oregon Housing Cost Study, "in 1998, households classified as having median incomes (as defined by HUD) could still afford the median house price in Portland. . . ."

Myth: By Requiring Rezoning and Infill, the UGB is Destroying Neighborhoods

Fact: Infill is happening due to market forces, not zoning
Metro's long-term plan (Region 2040) does not require zoning for increased densities in existing neighborhoods. "Infill" occurs when a house is built on an already existing lot, without increasing the zoning: for example, when a homeowner with a 12,000 square foot lot, who lives in an area with a 6,000 square foot minimum lot size, decides to divide the property in half and build a home on the other half. Almost 30% of the region's new housing is being provided through infill, without any increase in zoned densities.

Myth: UGBs Severely Limit Residential Land Supply

Fact: Cities are required to have 20-year supply of land
Oregon law requires fast-growing cities, cities with populations over 25,000, and metropolitan service districts to include enough buildable land for the next 20 years of residential growth within their urban growth boundaries (Oregon Revised Statutes, 197.296). A perpetual 20-year supply of residential land clearly is not a severe limit.

Myth: Growth Controls Hurt Real Estate Markets

Fact: Independent market analysis supports growth control
Real Estate Research Corporation, an independent real estate investment consulting firm, recently concluded: "In reality, the most stable investment markets—the ones that have staying power and hold value— also have growth controls, either government-enacted or enforced by natural geographic boundaries. It's no coincidence that San Francisco, Seattle, and Boston are hemmed in by water, Chicago borders a huge lake, and Manhattan is an island. Developers reflexively loathe the regional growth boundaries set by Portland, Oregon, but admit the laws have led to a thriving downtown center as well as a healthy metropolitan area." (Emerging Trends in Real Estate, 1998)

Myth: Portland's Shrinking Lot Size is a Problem

Fact: Demographic shifts are changing markets, creating a demand for smaller homes
Critics of Portland argue shrinking average lot sizes are a problem. In 1998, the average size of a single family lot in the Metro region was 6200 square feet. As our population ages and families get smaller, people are demanding different types of housing. Prior to Metro's work, local zoning codes were actually an impediment to creative, new types of housing like townhomes and smaller attached and detached single family homes. These local codes prohibited such housing. Now, as codes are being revised to allow these housing types, builders can't keep up with the demand. Townhomes have been the most popular housing type in the last few years.

Myth: Oregon's Celebrated Planning Program Makes Housing Less Affordable

Fact: Affordable housing is a central part of the program
Maintaining the affordability of housing is an important part of Oregon's statewide planning program. Goal 10, "Housing," requires every community to ensure that sufficient land is provided for affordable types of housing. As far as we know, only Wisconsin has a similar requirement.

Fact: The planning program cuts red tape
A joint study by the Home Builders Association of Metropolitan Portland and 1000 Friends of Oregon concluded that Oregon's program of UGBs, in combination with other tools from the land use program, has kept housing prices in the Portland metropolitan area two to three times more affordable than other West Coast cities. This is because the program requires cities to designate land for all types of housing, and because developers wishing to build on that land get one of the fastest permitting processes in the nation. (1000 Friends of Oregon and The Home Builders Association of Metropolitan Portland, "Managing Growth to Promote Affordable Housing: Revisiting Oregon's Goal 10," 1991.)

"Oregon's growth-guiding legislation has successfully fostered affordable housing . . . . UGBs are an effective tool. UGBs create a decision system, making it clear to government officials, real estate developers, financial institutions, property owners, and residents where development may occur. The concept has enabled communities to realistically plan expansion in services and infrastructure to support future housing needs while limiting urban sprawl and keeping housing costs down." (Action, Regulatory Reform for Affordable Housing Information Center, Summer 1992.)

"Land use regulation can in fact be a powerful force to reduce housing costs and red tape. In Oregon, it has done just that." (Home Builders of Metropolitan Portland, in a letter to then-HUD Secretary Jack Kemp, cited in Action, Regulatory Reform for Affordable Housing Information Center, Summer 1992.)

Fact: Statewide planning saves homebuyers money through reducing the amount of property taxes required to pay for infrastructure
A Rutgers University study concluded that without a statewide planning act in New Jersey, each new home would cost $12,000 -$15,000 more. (Rutgers University, Impact Assessment of the New Jersey Interim State Development and Redevelopment Plan, 1992.) Oregon's planning program also provides for efficient, planned infrastructure investments.

November 1999