Portland’s Zoning Policies Make the Housing Crisis Worse

By Lydia White

The masterminds behind Portland’s newest inclusionary zoning recommendations have proven once again to be economically illiterate.

The Portland Planning and Sustainability Commission unanimously recommended requiring developers with 20 units or more to make 20% of units “affordable” at 80% of median family income, or 10% “affordable” at 60% median family income.

This policy fails to accomplish the Portland Housing Bureau’s stated intentions to “harness the economic power of the private market to increase the supply of affordable housing.”

A simple economics lesson would show them their policies exacerbate the city’s affordable housing crisis.

Developers are indeed responsive to basic economic concepts like incentives and cost-benefit analyses. They will not, and cannot, eat 20% of their costs. As with any tax, costs are passed on to consumers. Developers must offset their losses by accepting taxpayer-funded subsidies, cutting costs (such as forgoing routine maintenance or major repairs), or raising the prices of remaining units. This makes housing even less affordable, forcing lower-income households out of the city and spurring gentrification.

Until such unintended consequences are seriously considered, Portland city leaders will continue to amplify the housing crisis. Only the most out-of-touch city planners believe they can defy the laws of economics and make a scarce commodity more affordable by decreasing its supply.


Lydia White is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

Something’s Rotten in Metro’s Missing Garbage Tax Money

By John A. Charles, Jr. and Allison Coleman

Metro is asking for a new tax levy this November (Measure 26-178 on your ballot) despite the fact that it already has sufficient funds to operate all its parks.

In 2002, the Metro Council enacted a garbage tax for the specific purpose of funding operations and maintenance of Metro parks. That amount was raised to $2.50 per ton in 2004. Between 2002 and 2015, the garbage tax brought in $46.8 million for Metro parks.

Given that Metro raised all this money for parks, why is Metro asking for voter approval of another $80 million parks levy in the upcoming November election? Where did the $46.8 million in garbage tax money go?

The answer can be found in a bait-and-switch ordinance adopted by Metro in 2006. The Council amended the Metro Code to retain the garbage tax, but “undedicate” its use so that revenues would be swept into the Metro General Fund.

Since 2006, regional taxpayers have paid more than $32 million in garbage taxes that should have gone to parks, but instead went to other purposes. We’ve heard the scare stories before, but it’s time to call Metro’s bluff. Voters should reject the Metro tax levy and demand that all money from the garbage tax be rededicated to parks maintenance, as promised 14 years ago.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. Allison Coleman is a Research Associate at Cascade.

Oregon Must End “Economic Apartheid”

By Randal O’Toole

The housing affordability crisis is turning Portland, already one of the whitest cities in America, into one that is even whiter. Census data indicate that, between 2010 and 2014, the number of whites living in the city of Portland grew by 30,500, or 6.8 percent, but the number of blacks shrank by 4,500, or 11.5 percent.

Some of those blacks moved to Portland suburbs, but most moved out of the Portland area completely. While the number of whites in the Portland urban area grew by 94,000, the number of blacks shrank by 3,400.

Even before 2010, Portland’s high housing prices were negatively affecting blacks and other low-income groups. Census data show that, between 2000 and 2010, the share of households headed by whites living in single-family detached homes declined by 3.3 percent, but the share of households headed by blacks living in such homes declined 16.1 percent.

Housing prices also affected homeownership. Between 2000 and 2010, the share of whites living in their own homes fell by 2.2 percent, but the share of blacks (which was already well below the white share) fell by 12.6 percent.

In short, Portland’s housing affordability crisis forced some low-income people to leave the region and others into lower-quality housing. This process has led some to charge the region with “economic apartheid.” Yet, planners defend the region’s housing prices, one saying, “This is capitalism; how do you fight it?”

In fact, Portland’s high housing prices aren’t a result of capitalism; they are due to government land use restrictions. Portland planners celebrate the fact that the region’s urban growth boundary has forced the population to “grow up, not out,” as the region’s population density has grown by 20 percent since the boundary was first drawn in 1979.

Such increased densities are a prescription for increased land and housing costs. In 1990, an acre of land suitable for home construction inside the growth boundary cost about $25,000. Today, a similar acre, if you can find it, would generally cost about $300,000.

Higher land prices are accompanied by increased regulation as Portland-area governments know that homebuyers have few alternatives if they don’t want to endure long commutes. In 1999, the Portland City Council approved a comprehensive design ordinance despite warnings from the Home Builders Association of Metropolitan Portland that the new rules would make housing more expensive.

Portland and other Oregon cities also have stiff system development charges that can add $20,000 to $40,000 to the cost of a new home. By comparison, similar charges in Houston, one of the nation’s most affordable housing markets, are less than $2,000 for homes of up to 3,000 square feet.

In 1990, the median value of owner-occupied homes in the Portland area was twice median family incomes, which was very affordable. Today, thanks to the growth boundary and regulation within the boundary, it is nearly five times median family incomes, which is very unaffordable.

These policies effectively discriminate against low-income blacks and other minorities; and under a 2015 Supreme Court ruling, they violate the Fair Housing Act just as much as if Portland put out a sign saying, “No blacks allowed.” The ruling said that land use policies that make housing more expensive can be legal under the Fair Housing Act only if they have a legitimate goal and there is no other way of accomplishing that goal without making housing less affordable.

For example, requiring sewer hookups makes housing more expensive but has a legitimate goal of protecting public health. The goals of the urban growth boundary and densification, however, are either not legitimate or could be achieved without creating a housing crisis.

Boundary advocates often claim the growth boundary is needed to preserve farms and open space. But all of the urban developments in Oregon only occupy 1.5 percent of the state; and if there were no boundaries, it still would be less than 2 percent. Urbanization is no threat to Oregon farms, forests, or open space.

Advocates also claim that densification will lead people to drive less, saving energy and reducing greenhouse gas emissions. However, the effects of density on driving are tiny, especially when compared with the huge costs; and there are much better ways of saving energy and reducing emissions that don’t make housing unaffordable.

To end discrimination against blacks and other low-income minorities, the Oregon legislature must repeal the state’s land use laws that authorize growth boundaries and other regulations that make housing unaffordable.


Randal O’Toole is an adjunct scholar with Cascade Policy Institute, Oregon’s free market public policy research organization. He is the author of Cascade’s new report, Using Disparate Impact to Restore Housing Affordability and Property Rights.

Abolish Growth Boundaries to Ensure Fair Housing

By Randal O’Toole

A recent Supreme Court decision found that government policies that make housing expensive may violate fair housing laws. This decision could have a profound impact on Portland’s housing market.

Portland’s rapidly growing housing prices are a major hardship on newcomers, renters, and low-income families. Particularly hard hit are blacks, whose per capita incomes remain only about 60 percent of whites’.

The housing crisis has actually forced many blacks to move outside of the region. According to Census Bureau estimates, between 2010 and 2014, white numbers grew by 6.8 percent in the city of Portland and 6.5 percent in the Portland urban area, while black populations fell by 11.5 percent in the city and 5.3 percent in the urban area, thus reaffirming the claim that Portland is “the whitest city in America.”

Though many urban planners deny it, there is no doubt that the ultimate source of Portland’s housing crisis is the region’s urban growth boundary. Common sense says that restricting the supply of something for which demand is increasing will cause prices to go up. This is confirmed by economic studies from Harvard, the Federal Reserve Board, the University of California, and the University of Washington, among other places, concluding that strict land-use regulation is the main cause of unaffordable housing.

Other policies also make housing less affordable, including lengthy delays in the permitting process, onerous impact fees, and gaudy architectural design codes. But these policies would have little effect if developers could meet market demand by building homes in unregulated areas outside of existing cities. Urban growth boundaries not only limit supply, but they shield city governments from outside competition.

In 1857, Oregon’s first constitution banned blacks from moving to the state. This was rendered unconstitutional by the 14th Amendment to the U.S. Constitution in 1868. But in June 2015, the Supreme Court ruled that governments that impose land-use restrictions that make housing less affordable can be just as guilty of violating the Fair Housing Act as if they put up a sign on their borders saying, “No blacks allowed.”

A rule written by the Department of Housing and Urban Development says that “land-use rules, ordinances, policies, or procedures” that make housing more expensive are allowable only if they are needed to achieve a “legitimate” goal and there were no other way of reaching that goal that wouldn’t increase housing costs. None of the reasons used to justify Oregon’s urban growth boundaries meet these tests.

For example, planning advocates say boundaries are needed to protect farms, forests, and open space. But more than 98 percent of Oregon is rural, and urbanization is no threat to the state’s agricultural or timber production.

Planning advocates also say boundaries help save energy and reduce greenhouse gas emissions. But research has shown that the effect of growth boundaries on these things is tiny, and there are far better ways of saving energy and reducing emissions that don’t make housing more expensive.

Many Portland planners argue that housing can be made more affordable by growing up, not out, that is, by increasing urban densities rather than allowing the region to “sprawl” across the landscape. But this has never worked anywhere.

Recent census data clearly reveal a strong correlation between urban densities and unaffordability. Moreover, fifty years of census data also show a strong correlation between increases in urban densities and declines in housing affordability.

For example, in 1969, the San Francisco Bay Area was very affordable, with median housing prices a little more than twice median family incomes. Since then, urban growth boundaries adopted by Bay Area counties have increased densities by 65 percent, while median housing prices have grown to seven times median family incomes.

When comparing urban areas across the country, it is clear that the key to housing affordability is to keep land outside of city limits relatively unregulated so that developers and builders can meet demand. For social justice, Oregon must repeal the laws allowing urban growth boundaries and regulation of unincorporated lands.


Randal O’Toole is an adjunct scholar with Cascade Policy Institute, Oregon’s free market public policy research organization. He is the author of Cascade’s new report, Using Disparate Impact to Restore Housing Affordability and Property Rights.

Metro’s $32 Million Broken Promise

— Why You Should Vote Down Metro’s Natural Area Levy

By John A. Charles, Jr. and Allison Coleman

In 2006, the Metro Council submitted to the voters a general obligation bond measure in the amount of $227.4 million to fund natural area acquisition. The measure was approved.

In a little-noticed appendix to Resolution No. 06-367A, the Metro Council stated that greenway lands acquired with bond funds would be land-banked with limited maintenance beyond initial site stabilization and possible habitat restoration. The Council noted that it had the financial means to carry out this promise:

“Once the 2006 Natural Areas Bond Measure is approved by voters, Metro will commit existing excise taxes to this basic level of maintenance, with Metro having sufficient resources currently to manage the newly acquired properties in this manner for a period of approximately ten (10) years.”

If the phrase “existing excise taxes” seems puzzling, there’s a reason; almost no one remembers that in 2002, the Metro Council enacted a garbage tax of one dollar/ton for the specific purpose of funding operations and maintenance (O&M) of parks. That amount was raised to $2.50/ton in 2004. Between 2002 and 2015, the garbage tax brought in $46,789,044 for Metro parks.

Metro Solid Waste Excise Tax

Dedicated to natural area maintenance

 

Year Excise Tax Tonnage Total Revenue
2002 $1.00 1,251,823 $1,251,823
2003 $1.00 1,362,204 $1,362,204
2004 $2.50 1,563,884 $3,909,710
2005 $2.50 1,626,255 $4,065,637
2006 $2.50 1,720,168 $4,300,420
2007 $2.50 1,613,848 $4,034,620
2008 $2.50 1,524,370 $3,810,925
2009 $2.50 1,381,326 $3,453,315
2010 $2.50 1,320,992 $3,302,480
2011 $2.50 1,248,191 $3,120,477
2012 $2.50 1,297,716 $3,244,290
2013 $2.50 1,373,612 $3,434,030
2014 $2.50 1,431,132 $3,577,830
2015 $2.50 1,568,513 $3,921,282
Total Revenue     $46,789,044

Given that Metro raised all this money for parks, and promised no new taxes before 2016, why did Metro place an operating levy on the ballot in 2013 for parks maintenance (which passed); and why is Metro asking for voter approval of another $80 million parks levy in the upcoming November election? Where did the $46.8 million in garbage tax money go?

The answer can be found in a bait-and-switch ordinance adopted by Metro just a few weeks after the bond measure was referred out to voters in March 2006. The Council amended Metro Code Section 7.01.023 to retain the $2.50/ton excise tax, but “undedicate” its use so that revenues would be swept into the Metro General Fund.

Since 2006, regional taxpayers have paid more than $32 million in garbage taxes that should have gone to parks O&M, but instead went to other purposes.

Instead of owning up to this chicanery and restoring the garbage tax as a dedicated revenue source, Metro officials continue to make the case for a new property tax. In a 2011 publication, Metro claimed, “…the existing financial model is not sustainable. Metro’s portfolio of land continues to grow, while the general fund resources needed to support it are decreasing.”

In a more recent document, Metro asserted, “In Metro’s general fund, which pays for many primary programs and support services, costs continue to rise faster than revenues.”

Both of these claims are false. In 2011 Metro was already taking in more than $3 million annually in garbage tax revenue for parks. By the end of 2015 it was nearly $4 million.

Meanwhile, Metro was swimming in a sea of new revenue. The Metro Auditor found that during the 10-year period of 2003-2013, total annual revenue went up 22% in real terms, while total expenses went up only 16%. Annual revenue per capita for the Metro region went up 7%; expenses per capita increased by only 4%.

Metro Councilors now state that if voters refuse to approve a new tax levy in November, the agency will “have to ramp back pretty much everywhere.”

We’ve heard the scare stories before, but it’s time to call Metro’s bluff. Voters should reject the Metro tax levy (Measure 26-178 on your ballot) and demand that all money from the $2.50/ton garbage tax be rededicated to parks maintenance, as promised 14 years ago.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. Allison Coleman is a research associate at Cascade.

New Report Highlights Civil Rights Implications of Oregon Land Use Laws, Urban Growth Boundaries

FOR IMMEDIATE RELEASE

Media Contact:
John A. Charles, Jr.

john@cascadepolicy.org

503-242-0900

PORTLAND, Ore. – A new report released today by Cascade Policy Institute demonstrates that Portland’s rapidly growing housing prices are a major hardship on newcomers, renters, and low-income families. The report claims the ultimate source of Portland’s crisis in housing affordability is the region’s urban growth boundary and that minorities suffer the most from the consequences of high housing prices.

The report, Using Disparate Impact to Restore Housing Affordability and Property Rights, is authored by Randal O’Toole, an adjunct scholar with Cascade Policy Institute, Oregon’s free market public policy research organization, and the author of The Vanishing Automobile and Other Urban Myths.

The report claims the ultimate source of Portland’s crisis in housing affordability is the region’s urban growth boundary:

“The Oregon legislature and various cities have applied band-aid solutions to this problem; but none of them will work and some, such as inclusionary zoning, will actually make housing less affordable. That is because none of these solutions address the real problem, which is that the urban growth boundaries and other land-use restrictions imposed by the Land Conservation and Development Commission, Metro, and city and county governments have made it impossible for builders to keep up with the demand for new housing.”

“Common sense says that restricting the supply of something for which demand is increasing will cause prices to go up,” says O’Toole, who cites the findings of economic studies from Harvard, the Federal Reserve Board, the University of California, and the University of Washington, among others, to conclude that strict land-use regulation is the main cause of unaffordable housing.

Other policies which make Portland-area housing less affordable, the report claims, include lengthy delays in the permitting process, onerous impact fees, and architectural design codes. But these policies would have little effect if developers could meet market demand by building homes in unregulated areas outside of existing cities. Urban growth boundaries not only limit supply, but they shield city governments from outside competition.

“These policies effectively discriminate against low-income blacks and other minorities,” says O’Toole. “Under the 2015 Supreme Court ruling, Texas Department of Housing v. Inclusive Communities Project, they also violate the Fair Housing Act just as much as if Portland put out a sign saying, ‘No blacks allowed.’”

O’Toole explains how this Court decision could have a profound impact on Portland’s housing market. He says the Supreme Court’s ruling said that land use policies that make housing more expensive can be legal under the Fair Housing Act only if they have a legitimate goal and there is no other way of accomplishing that goal without making housing less affordable.

According to Cascade Policy Institute CEO John A. Charles, Jr., “Policymakers think the solution to our housing shortage is to build more tax-subsidized apartments, but simply deregulating the land markets would result in far greater housing supply at lower cost.”

The report, Using Disparate Impact to Restore Housing Affordability and Property Rights, is available here.

Founded in 1991, Cascade Policy Institute is a nonprofit, nonpartisan public policy research and educational organization that focuses on state and local issues in Oregon. Cascade’s mission is to develop and promote public policy alternatives that foster individual liberty, personal responsibility, and economic opportunity. For more information, visit cascadepolicy.org.

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Policy Picnic – October 26, 2016

Please join us for our monthly Policy Picnic led by

Cascade’s President and CEO, John A. Charles, Jr.


Watch Your Wallet November 8! Why You Should Vote No on Tigard Light Rail and Metro’s Open Space Levy

Metro is asking for a new tax levy despite the fact that it already has sufficient funds to operate all its parks. Since 1995, Metro has spent hundreds of millions of tax dollars buying up large tracts of lands far from where most people live. The Metro Council doesn’t want you (or your dog) to use most of these lands, but they do want you to pay for them. Metro’s Five-Year Operating Levy (Measure 26-178) is one more wallet-grab.

The proposed Tigard-Tualatin light rail project (Measure 34-255 in Tigard) would cost at least $240 million per mile to construct — the most expensive transit project in state history. Tigard will be required to fund part of that price tag, and increased taxes will be the result. This is what happened to the City of Milwaukie and Clackamas County when Metro forced through the Orange line.

John Charles will give you the inside story on these two ballot initiatives and tell you what their proponents don’t want you to know. He’ll explain what these measures really do and what they mean for you, your family, or your business. Bring your friends and coworkers!

Admission is free, but reservations are required due to space limitations. You are welcome to bring your own lunch; light refreshments will be served.

 

Cascade’s Policy Picnics are generously sponsored

by Dumas Law Group, LLC. 

Dumas Law Group
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“The Rent Is Too Damn High!” — Why Rent Control Won’t Help

Once again, Portland led the nation this July with its home prices rising 12.4 percent year-over-year versus the national average of just 5.0 percent. As of April, Portland remained the 12th most expensive rental market in the nation. These numbers are not unrelated. Housing prices are often related to what units can be built for, whether they are single-family homes or multifamily apartment houses.

Whatever the causes of rising rents in Portland and elsewhere, the political fix bubbling to the surface not only won’t help most people afford housing, it likely will make the situation worse. That political fix goes by the name of rent control.

Last year, Willamette Week published an informative and entertaining piece entitled “The Five Myths About Portland Apartments.” In response to Myth 3, which is that rent control is the answer, Jerry Johnson of Portland real-estate consulting firm Johnson Economics noted:

“Rent control is an Econ 101-level policy disaster. If you happen to get one of the rent-controlled units, good for you. But it’s basically a lottery of who wins and who loses.”

Apparently unaware of the policy disaster that rent control forebodes, Oregon Speaker of the House Tina Kotek recently proposed allowing localities to enact their own rent control programs. She also wants to end so-called “no-cause” evictions and to ban rent increases above a “reasonable” percentage “for the foreseeable future.” In her prepared remarks she said, “Our housing crisis is a man-made emergency that demands bold action,” and, “We have privileged the right to make a profit on property far above the universal human right to safe and stable housing.”

Our housing crisis may very well be a man-made emergency. If so, the Speaker has misdiagnosed the cause, which has more to do with Oregon’s “man-made” restrictive land use laws than it does greedy landlords. And, the “bold action” she proposes likely will make the situation worse.

Economists of virtually every political stripe reject rent control as a viable way to improve housing affordability. They recognize what too few of our political leaders and voters recognize: namely, that controlling the price of a commodity, in this case rental housing, actually harms the very people the policy is designed to help. They know from economic theory and observation over many decades The High Cost of Rent Control. They know that it misallocates housing resources, heightens tensions between landlords and tenants, stifles private investment in affordable housing, and leads to deterioration and eventual abandonment of the very housing stock that middle- and lower-income tenants wanted it to protect for them at affordable prices.

Three local economists were quick to respond to Speaker Kotek’s suggestions:

“Rent control just sends us a couple hundred miles closer to San Francisco in terms of housing policy,” said Gerard Mildner, director of the Center for Real Estate at Portland State University.

“It’s almost textbook that any form of rent control ultimately harms consumers, as well as landlords,” said Eric Fruits, an economist and editor of Portland State University’s Center for Real Estate quarterly reports. “It may benefit some in the short term, but in the longer term, there will be fewer units available to rent, which will only make matters worse.” Instead, Fruits said, the free market should be allowed to work, with higher prices sending signals to developers that more units are needed.

“The demand for urban living is increasing and cities are not increasing the supply nearly fast enough,” Portland economist Joe Cortright said. “The only solution is to build new housing.”

As an Oregonian editorial then pointed out:

“Among other things, limiting rent growth dampens future investment in housing, inflates rents for unregulated units and discourages residents who secure rent-controlled units from moving, even when it’s in their best interest.”

In a lively discussion on social media following Speaker Kotek’s pronouncements, one person responded to her call for an end to “no-cause” evictions:

“No cause eviction benefits good tenants. When the bad guys move in, they threaten the good tenants who are afraid to testify about their behavior. The good tenants become prisoners in their apartments while the bad guys run wild. A landlord’s only defense is to become more restrictive on who they will rent to, therefore decreasing options for all renters.”

Even self-proclaimed “progressive” Portland city commissioner, Steve Novick, notes:

“…most economists say rent control has unintended consequences, including a decline in the production of new rental housing.”

While this is true, in “progressive” Portland and in the state Capitol economic laws are often trumped by political laws that make people feel better for a while, until economic reality rears its ugly head. Of course by then those who passed the laws have often moved on.

Accountability is rarely a part of the political process, which may be why it so often leads to unintended consequences that harm the very people the politicians were trying to help. Unfortunately, we may be destined to repeat this process again as rent control lurches onto the 2017 legislative agenda.


* Political activist and frequent candidate Jimmy McMillan memorably used “The Rent Is Too Damn High!” as his main campaign issue, slogan, and the name of his political party during his campaigns, including the 2010 New York gubernatorial election.

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Repeating Mistakes Is Not a Housing Strategy

The Portland City Council has approved a plan for the Housing Bureau to lease industrial land in North Portland for $10,000 per month, beginning October 7. The site is to be used for the construction of a large homeless shelter that potentially could serve up to 1,400 people. This idea, pushed by developer Homer Williams, was rushed through with virtually no due diligence.

Before additional money is spent, the City Council should carefully analyze what went wrong in two previous construction projects. First was the $58-million Wapato Jail built by Multnomah County in 2004, but never operated. With 525 beds in pristine condition, one would think there is potential for this site to temporarily house at least a few people now living under bridges.

Second, in 2011 Portland opened the $47 million Bud Clark Commons, which includes 130 studio apartments and extensive social services for low-income individuals. It was a nice idea, but the police have been called so often to the Commons that in December 2013, then-Chief Mike Reese told the Portland City Council that he was considering filing a chronic nuisance property complaint against the shelter.

Both structures were built with good intentions, but things did not go as planned. Let’s learn from the past before repeating mistakes in the future.

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Oregon Land Board Low-Balls Elliott Timber with Fixed-Price “Bidding”

Last week the Oregon Department of State Lands announced the “fair market value” of 82,450 acres of Common School Trust Lands within the Elliott State Forest as $220.8 million. The number was picked by Roger Lord of the consulting firm Mason, Bruce & Girard after analyzing three different professional appraisals. Proceeds from the land transfer will go to the Common School Fund and be invested for the long-term benefit of public school students.

At a public meeting held in Salem, the Director of the Department, Jim Paul, reiterated that anyone hoping to acquire the 82,450 acres must offer exactly $220.8 million. Any offer above that will be considered “outside the protocol” and deemed “non-responsive.” This announcement was the latest step in the Land Board’s plan to dispose of the Elliott property in a non-competitive bid process.

The Land Board has invented a “fair market” value of the Elliott timberland without allowing a market to actually function. The price investors are willing to pay might be higher than $220.8 million, or even multiples of that number. Unfortunately, we’ll never know because the Land Board is refusing to take competitive bids. Clearly, this is a breach of fiduciary trust. Public school students, teachers, and parents deserve to get top dollar in this once-in-a-lifetime sale of a public asset.

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