Seattle Bubble

News & discussion about real estate & the housing bubble in the Seattle area.

Seattle Bubble - News & discussion about real estate & the housing bubble in the Seattle area.

Entries Tagged as 'growth_management'

Crosscut: Seattle Population is Nowhere Near Current Capacity

By The Tim on August 11th, 2009 at 1:04 PM · 44 Comments

Interesting article over on Crosscut today: Why Seattle won’t grow as fast as planners say

If Seattle’s current estimated population is 602,000 and we add the hypothetical 180,000 and you get 782,000 people by 2040 — considerably short of the 1.2 million that some claim are on the way.
…
The assumption is that right now, without changing or increasing any zoning at all, Seattle has the capacity to provide housing for up to 800,000 people without changing the rules to make buildings more dense like the proposed multifamily update or up zoning single family neighborhoods. Theoretically the capacity is already there.

Whichever means of calculating you use, it turns out we aren’t anywhere near capacity.
…
According to Seattle’s own numbers from January 2005 through March of 2009, over 28,000 housing units have been added to Seattle’s stock either built (16,504 units) or permitted and at various stages of construction (11,721 units). Seattle in just 51 months has reached 60 percent of its 20-year target. At this rate we’ll add over 110,000 units under current zoning by 2024, over twice the rate needed to fulfill our targets.

It should be noted that this article is focusing on Seattle proper, not the entire metro area. That being said, the author points out some interesting facts that would seem to point to continued downward pressure on home prices, even in the “close in” in-city neighborhoods.

It is also worth mentioning that I made similar points back in 2007 that apply on a county-wide basis.

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Regulations “unlikely to contribute more than 17%” of home price

By The Tim on January 5th, 2009 at 7:49 AM · 11 Comments

Some of you may recall back in February last year, when the Seattle Times ran a story about UW professor Theo Eicher’s land use regulations study, with the headline declaring “Rules add $200,000 to Seattle house price.”

Here at Seattle Bubble we had serious questions about the dramatic conclusion in that study, and the methods that led to that conclusion:

…my two biggest problems are that the study alleges a negative influence on home prices due to the mortgage market, and that the time period encompasses only a relatively strong period of growth for the housing market.

Thanks to a reader tip, I came across a more lengthy paper from a group called the American Planning Association that goes into more detail than my post did, and concludes that the effects of regulation were grossly overstated in Eicher’s study. Here’s what they came up with:

The bottom line is that regulations are unlikely to contribute more than 17% of the final price of a typical home, and the impact in many communities may be much less. To use Seattle as a point of comparison, 17% would represent about $68,000 (in current dollars) of a $400,000 home.

You can download a pdf the entire study to read through and decide for yourself whether Mr. Eicher or the APA are closer to the truth of the matter.

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Detailed Study of Land Use Regulations & Home Prices

By The Tim on February 14th, 2008 at 12:58 PM · 57 Comments

The big local housing story today is a study that was released recently by University of Washington Economics professor Theo Eicher. The thrilling title of the study is “Municipal and Statewide Land Use Regulations and Housing Prices Across 250 Major US Cities,” and it may be found (along with a number of related materials) here.

Rather than just quote the news articles about the study, let’s take a look at the study directly for ourselves. Unfortunately, most of the study is exactly what you would expect from a university economics professor: lots of confusing terminology and complicated math concepts. I’ll do my best to accurately summarize his findings here.

Before we get started, two important factors should be noted. First, that according to the Times write-up, Mr. Eicher “received no outside funding for the project.” So there is no basis to suspect he was influenced toward a specific conclusion by any particular outside interests. Second, the study focuses only on “owner-occupied” housing within the actual city limits.

Here’s the question Mr. Eicher attempts to answer with his study:

What drives the change in housing prices?
Or: Did housing prices increase because of land use restrictions and/or income/population growth?

In order to answer that, he breaks down the components that affect housing price growth in any given city into the following:

  • common effects*
  • land use regulations
  • income
  • population
  • population density

*(Such as changes in the national level of unemployment, changes in mortgage rates, or lending procedures, or liquidity in the mortgage market.)

He goes into quite a bit of detail on the effect of each of these factors on housing prices, and the end result is a large table (Table 3) in which he puts a dollar amount on the amount of change due to each variable from 1989 to 2006. The big number that the news reports are attaching to is the total estimated contribution of regulation, which he calculates at just under $200,000 (in 2006 dollars) for Seattle.

Considering what a large percentage of the total increase that $200,000 makes up, it is no wonder that’s what the news is focusing in on. However, in looking at Mr. Eicher’s results, the thing that jumps out to me is that the estimated contribution of the common effects mentioned above is somehow negative over the time period he studied. Unfortunately I couldn’t find a detailed explanation for this in his paper, although I admit that it would probably take me a couple days to look over it thoroughly enough to say that for sure that there isn’t one. It would seem to me that changes in mortgage rates (much lower in 2006 than 1989), lending procedures (much looser in 2006 than 1989) and mortgage market liquidity (much greater in 2006 than 1989) would have a pretty large positive effect on home prices, not a negative one.

Furthermore, while an analysis like this may accurately describe the effect of regulation on the cost of new homes, I would contend that the cost of resale homes is not necessarily always directly tied to the cost of new construction. Yes, the two are related, and there is likely a strong correlation when the housing market is strong and homeownership is increasing. But that’s the problem; during the entire time period Mr. Eicher studied, homeownership was steadily increasing, and for most of the period, housing markets were relatively strong.

US Housing Market 1989-2006
Click to enlarge

I’m not going to try to argue with Mr. Eicher’s obviously well-researched study. If he feels that he has convincing proof that regulations have been that major of a factor in home prices, then those of us without advanced degrees in economics will probably have to take him at his word. However, I think it’s reasonable to ask whether this apparent relationship between government regulations and home prices holds true regardless of overall demand for home ownership. 2006 was essentially the peak of a very long run-up in the housing market. It will be interesting to see if regulation keeps prices propped up as demand drops like a rock.

(Theo Eicher, University of Washington, 01.14.2008)
(Elizabeth Rhodes, Seattle Times, 02.14.2008)
(US Census Bureau, Homeownership Rates)
(S&P/Case-Shiller, Home Price Index)

Update: The Sightline Institute, a green-minded “think tank,” has their own rebuttal of the study up on their blog. It’s interesting, but unfortunately the post seems based entirely on Elizabeth Rhodes’ article in the Times, and not the study itself.  As I said above, my two biggest problems are that the study alleges a negative influence on home prices due to the mortgage market, and that the time period encompasses only a relatively strong period of growth for the housing market.  None of the other people complaining about this study seem to be hitting on those important points.

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King County NOT Running Out of Land

By The Tim on September 21st, 2007 at 10:00 AM · 58 Comments

For those that continue to insist that home prices around Seattle are high because “supply isn’t keeping up with demand,” I would like to point out the 2007 King County Buildable Lands Report.

This is what the report has to say about building activity in King County from 2001 through 2005:

  • King County gained more than 49,000 net new housing units in the UGA during the second five-year Buildable Lands review period (2001-2005). Accounting for assumed vacancy rates, this translates into about 47,300 net new households in Urban-designated King County, which is about 31% of the 22-year Household Growth Target added in 23% of the planning period. This growth occurred despite an economic recession and significant job loss during four of the five years of the analysis period.
  • During the six years from the April 2000 US Census to April 2006, Washington State’s Office of Financial Management (OFM) estimates that King County’s population grew by 98,300 persons, from 1,737,000 to 1,835,300. This increase is nearly 32% of the 2002 OFM population projection for the planning period (2001-2022), which is the basis for the Household Growth Targets, during six years or 27% of the planning period.

- Chapter IV, p. 1

Quick calculation… 98,300 people in six years is roughly 82,000 people in five years, which translates to approximately 35,650 households (assuming an average of 2.3 persons per household—2000 Census showed 2.39). 35,650 new households (county-wide) vs. 49,000 new housing units (UGA-only). Whoops. Looks like supply has actually been easily exceeding demand, just like I said it was.

Going forward, the picture looks much the same:

  • The King County UGA has capacity, based on current plans, for approximately 289,000 additional housing units accommodating an estimated 277,000 additional households—more than twice the capacity needed to accommodate the Household Growth Target of about 106,000 for the remainder of the 2000-2022 planning period.
  • At projected household sizes, the 289,000 new housing units, together with the existing housing stock in 2006, could accommodate more than 400,000 additional persons within the UGA. This is more than twice the population growth needed to meet the remaining part of the 2002 OFM projection of 2,048,000 total population for King County in 2022.

- Chapter V, p. 3

Translation: the Growth Management Act and Urban Growth Boundary have not and will not result in an artificially-constrained supply of houses in King County for the foreseeable future.

Here’s a little blurb from the P-I (which is about all I expect to see, since the facts in this report don’t back up the oft-repeated “constrained supply” claim the papers love to tout):

According to the report, King County cities and towns grew slightly faster than projected from 2001 through 2005 and still had enough capacity for twice as many households as remain in the projection for growth through 2022.

In fact — thanks to rezoning, denser construction and increasing potential for redevelopment — there was more capacity at the end of the five years, despite development of 5,000 acres during that time.

Can we please stop claiming that “restricted supply” will prop up local housing prices now? I can write articles all day long about how beautiful the pretty pink sky is, but that doesn’t and won’t make it true. It just makes me annoying and ignorant.

(P-I Staff, Seattle P-I, 09.20.2007)

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One Third of Seattle Homebuyers Have Unaffordable Mortgages

By The Tim on June 12th, 2007 at 3:17 PM · 27 Comments

Aubrey Cohen reports on a recently-released report out of Harvard. The report isn’t your usual rah-rah, go housing type of fluff, and actually shows Washington State as being among the markets with a larger percentage of risky loans. I don’t imagine it’s a coincidence that there’s not even a passing mention of the report in the Seattle Times…

The U.S. housing market will struggle with too much supply and falling prices for a while yet, but its biggest problem is that homes are too expensive for too many families, according to a report released Monday.

“It is too early to determine when the housing slump will end,” the 2007 State of the Nation’s Housing report from the Harvard University Joint Center for Housing Studies says. “House prices are only beginning to soften, loans most at risk are just starting to hit their reset dates, and credit standards have tightened.”

Home prices in and around Seattle are holding up, but the area faces some of the same challenges as other parts of the country, according to the report.

What?!? I thought Seattle was special! Completely and totally insulated from any ills that affect the rest of the country. Say it ain’t so.

The report calls overbuilding and job losses “far greater threats” to house prices than rapid appreciation. Local experts pinned Seattle’s continued increases in house prices on its strong job growth and growth management’s constraints on supply.

“As much as the builders tend to dislike the Growth Management Act, it has probably prevented them from their own excesses in the most recent cycle,” said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.

Overbuilding, you say? Good thing we don’t have any of that here. And I’ll agree that job losses would tend to exhert downward pressure on prices, but just as prices can continue to rise in spite of job losses, they can also drop in the face of “strong job growth.”

I also haven’t yet seen an explanation as to why the Seattle area housing market is only just now experiencing a tightening due to Growth Management, when it was in place 10 years before the current run-up. The only thing I’ve seen that comes even close to an explanation is a weak argument that Growth Management policies are “constantly changing.” If that’s the reason, then what specific change led to the sudden supposed limit on supply?

And, although Seattle’s prices have increased rapidly in the past few years, those increases did not meet the Harvard center’s definition for “severe overheating” — at least a 15-percent increase per year for three consecutive years.

Let’s take a look at King County’s SFH price increases for the last few years:

2003-2004: ~10%
2004-2005: ~15%
2005-2006: ~14%
2006-2007: ~10% (so far)

Phew! Looks like we just barely dodged the bullet on that one.

According to the center, 7.8 percent of Seattle-area mortgages were for investors last year — good for 125th place among the 332 areas in the report.

That’s relatively low, but still well above the 50th percentile. I wonder how they define “investors.” Curious that this little detail was left out of the article. Anyone have the time to dig up that information?

The report also broke out state percentages of loans where buyers only pay interest or can even pay less than their interest charge, meaning their balance increases. Washington had a 30 percent rate of interest-only loans — sixth among states and higher than the national rate of 22 percent — and a 12 percent rate for payment-option loans, fifth among states and more than the U.S. rate of 11 percent.
…
In the Seattle area, 33.3 percent of homeowners and 47 percent of renters spend more than 30 percent of their pretax income on housing. That’s 13th among the nation’s largest 50 metro areas for burdened homeowners and 38th for renters.

Yow! Even with 30% of loans being interest-only (state-wide, I’ll bet it’s higher for King County), a full third of home-buyers (in the Seattle area) are still spending more than 30% of their income on their home loans. That sounds like a stellar, healthy market to me, yes sir.

Wait, no. That sounds like a market ripe for correction.

(Aubrey Cohen, Seattle P-I, 06.11.2007)

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Urban Growth Boundary Malarkey

By The Tim on February 5th, 2007 at 8:50 PM · 14 Comments

A common argument about housing prices that I’ve personally noticed popping up frequently in the last few weeks is that they are as high as they are here in King County thanks in very large part to the Growth Management Act (GMA). Specifically, the argument claims that the Urban Growth Boundary (UGB) has so limited the available land to build on that the supply of new homes simply has not been able to keep up with increasing demand.

Here are two simple reasons that the UGB argument is nothing more than a red herring and a canard:

Reason #1: The UGB pre-dates the present run-up by roughly 10 years.
The UGB was put into place in 1992, and has remained largely unchanged since. If the UGB were to blame for high home prices, one would expect to see home prices begin to shoot up shortly after its enactment.

From January 1993 (the earliest month I have data for) to January 2002, the median closed price of single-family homes in King County increased an average of 6.3% per year. However, from January 2002 to December 2006 (the most recent month I have data for), the median increased 11.1% per year.

If the UGB is to blame for the ridiculous run-up in prices, why were its effects not noticed until ten years after it was enacted? That makes no sense.

Reason #2: King County was not alone in the home price run-up.
Many cities and counties across the entire country have experienced runaway home price growth over the past five years. UGBs cannot account for this near-nation-wide phenomenon. Absolutely zero evidence been provided to explain the notion that even though King County home prices jumped up by an unprecedented amount, it was not due to the factors that drove home prices up elsewhere in the country. If it is granted that these macro-economic factors had a hand in driving up King County home prices, why blame the UGB?

It would take quite a stretch of the imagination, combined with a healthy dose of tortured logic to attempt to claim that although home prices in King County were skyrocketing at nearly the same time as the rest of the nation (delayed by ~1 year), it was for an entirely different reason. Oh, and by the way that reason is a law that was passed ten years ago.

Yeah, that’s the ticket.

(King County, History and Background of the Comprehensive Plan)
(HistoryLink, Urban Growth Boundary)

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