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.
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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.
Here is what Portland should be doing for the homeless living in tents (below the low income that they typically address): http://www.debunkingportland.com/homeless-upgrade.html
I’m sorry to hear about your father having to leave his house.
“The house was purchased by a San Francisco couple who cheerfully bid 27 percent more than our asking price”
Out of curiosity, did they pay cash? If they financed, one wonders if they would have overbid were the average 30-year rate 6% instead of just above 3%.
You do touch on low interest and ZIRP in the next paragraph. With central banks now experimenting with negative interest rates, and having had low or zero rates for much longer than before the ’08 crash, the next recession could be much, much worse.
Great article, does your publisher make you go on the “talk-show-circuit” to promote your books? This short post seems to sum up the issues well enough that talk-show-patrons could grasp them.
The Antiplanner wrote:
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.
Sorry to read that. No fun at all.
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.
The Obama Administration, like the Clinton Administration before it, has wasted its time and resources on this subject. Better to do nothing than to endorse such policies.
Yes, the Administration could have taken a macro view, such as encouraging county and municipal governments to not subject current and especially future residents to urban growth containment, which ultimately is doomed to fail because of leapfrog development even further out from the urban core.
Randal,
Are you going to write a post about the Hoboken NJ Transit train crash? Interested to hear your thoughts regarding the train and the state of finances of NJ Transit. Thanks.
Remember, when money is used for one purpose that money is not available to be used for other purposes
$514.00 a square foot is incredibly wasteful For 1/2 of that, the square foot price would still be higher than paid for brand new single family houses in most of the country.
Use the other half for education, for parks, for food for these poor people who will be tenants. But don’t waste it and then brag about how much good you are doing.
Someone got that $514.00 a square foot. I am certain they had good connections to the government agencies that spent the money so wastefully. Again, the well-connected rich did better than the poor for whom the money was allegedly spent.
How much of $514 per square foot did the city get for managing the renovation?
“Use the other half for education, for parks, for food for these poor people who will be tenants.”
That money wasn’t theirs to begin with. Let the people who earned it keep it and voluntarily help others because the state will just waste it.
Let the people who earned it keep it…
Somehow, that never seems to be considered as an option.
The City of Denver is going down the same path by recently creating a $150 million affordable housing slush fund:
$150 million for a medium-size city like Denver = plenty of opportunity for graft. I expecially like:
Isn’t that nice? The city will “ask”.
Portlandia was going to buy the apartment building of my brother’s friend. Guess what the first thing they do is? Evict the existing tenants. So they make housing more affordable by reducing the supply for working folks.