The city of Portland, which likes to call itself “the city that works,” subsidized the renovation of a 50-unit downtown apartment building. The apartments will now be made available to people who earn less than $15,400 a year.
“In Portland, we strongly believe that downtown should be a place where people of all incomes can live,” said city commissioner Dan Saltzman. One problem with that philosophy, as Willamette Week‘s Nigel Jaquiss points out, is that the city spent $514 per square foot renovating those apartments. For a lot less money, it could have built twice as many brand new apartments elsewhere in the city.
In many ways, Portland is the model for nearly all of the policies advocated in the White House policy paper described here yesterday: minimum-density zoning, streamlined permitting for developers who want to build high densities; all single-family neighborhoods put in zones allowing accessory dwellings; lots of neighborhoods zoned for high-densities and multifamily housing; tax-increment financing and property tax abatements to subsidize density; and elimination of off-street parking requirements (which is the only policy discussed in detail by a Washington Post article about the White House paper). Yet, despite doing all of the things that the White House recommends to make housing affordable, Portland politicians claim that the city is suffering from a terrible housing crisis. Of course, most of the ideas proposed to solve the crisis, such as rent control and inclusionary zoning, will just make it worse.
The main reason for the crisis is that Portland is more interested in social engineering than in improving housing affordability. This is plain from Commissioner Salesman’s statement: rather than spend money on housing where it will be most effective, the city wants more people to live downtown.
Before adjusting for inflation, housing prices today have already exceeded prices at the peak of the bubble in Honolulu, San Francisco, and Seattle. This suggests it may not be long before another crash.
A recent article in the Economist calculated that the American housing market is worth $26 trillion, making it “the world’s largest asset class,” worth even more than the U.S. stock market. This value is highly distorted by land-use regulations in coastal states that not only make housing expensive, they make it volatile.
As the Antiplanner has repeatedly stated, this has many implications. The nation’s wealth inequality is mainly due to land-use policies that have created windfalls for homeowners while they impoverish renters and homebuyers. The next housing crash, which is likely to happen soon, may not have all of the negative ramifications of the 2008 crash, but it will greatly help to deaden the American economy as lots of people will see their assets dwindle and will therefore greatly reduce consumer spending.
Even after adjusting for inflation, San Francisco housing prices today exceed prices at the peak of the bubble.
The worst offenders are in California, which allows Portland and Seattle to grow as people flee the Golden State, bringing their equity dividends with them. This disguises the fact that the Portland and Seattle housing markets are nearly as distorted by growth boundaries as California’s.
My brothers and I recently had to put my father in memory care, and we were forced to sell his home to pay for his care. The house was purchased by a San Francisco couple who cheerfully bid 27 percent more than our asking price (and, after adjusting for inflation, 5-1/2 times as my parents paid for the house in 1958) with no inspection requested. This will help pay for my father’s care for many years, but the average family with children can’t afford to buy a home in the neighborhood we grew up in.
Low or negative central bank interest rates, banking crises in Italy and China, devaluation of Japanese currency, and the pending bankruptcy of the Social Security and PERS systems all point to another recession soon, and that means housing prices will fall. Since rising prices today predicated on further rises tomorrow, a small decline will quickly turn into a huge crash in those places where prices are volatile, which means the coastal states that regulate regional land use. Though they are a minority of states, they contain about 40 percent of the nation’s homes.
Rather than worry about these macro issues, politicians in Portland, San Francisco, Seattle, and other heavily regulated regions are more concerned about micro issues like the effects of AirBnB on rents and locating housing by mass transit. While it seems appropriate for local officials to worry about local issues, in this case it means they are adopting all the wrong policies. The White House could have taken a macro view, but it did not, and the country will be worse for it.