Oregon Office of Economic Ignorance

The Oregon Office of Economic Analysis recently published a four-part economic assessment of the “Portland housing bubble.” Written by an economist named Josh Lehner, the assessment looks at a lot of data but misses the elephant in the room, which is how land-use regulation has affected Portland housing.

Housing prices have risen to pre-financial-crisis levels, says Lehner, and Portland’s rental market has an inordinately low vacancy rate. New construction of both single- and multi-family homes is mostly at the high end. Lehner looks at these facts with alarm, but it never occurs to him that there is a simple remedy: end all of the land-use restrictions.

Land-use regulation not only makes housing more expensive, it makes housing prices more volatile, that is, more prone to bubbles. This is because, when supply is limited, a small increase in demand translates to a large increase in price rather than an increase in supply. Conversely, a small decrease in demand translates into a large decrease in price.

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