Friday, February 15, 2008 - Page updated at 07:53 AM
ROD MAR / THE SEATTLE TIMES
Seattle Times business reporter
Backed by studies showing
that middle-class Seattle residents can no longer afford the city's middle-class
homes, consensus is growing that prices are too darned high. But why are they so
An intriguing new analysis by
a University of Washington economics professor argues that home prices have,
perhaps inadvertently, been driven up $200,000 by good
Between 1989 and 2006, the
median inflation-adjusted price of a Seattle house rose from $221,000 to
$447,800. Fully $200,000 of that increase was the result of land-use
regulations, says Theo Eicher — twice the financial impact that regulation has
had on other major U.S. cities.
A key regulation is the
state's Growth Management Act, enacted in 1990 in response to widespread public
concern that sprawl could destroy the area's unique character. To preserve it,
the act promoted restrictions on where housing can be built. The result is
artificial density that has driven up home prices by limiting supply, Eicher
Long building-permit approval
times and municipal land-use restrictions upheld by courts also have played
significant roles in increasing Seattle's housing costs, he
(While his data reflect
owner-occupied homes within the city of Seattle only, Eicher thinks the same
basic findings may apply to surrounding cities.)
Eicher's $200,000 conclusion
doesn't surprise Kriss Sjoblom, staff economist for the Washington Research
Council, a nonpartisan organization that examines public-policy
"It's actually pleasing,"
Sjoblom says, "that we finally have data that allows us to show things we
thought were there all the time."
A UW professor for 13 years,
Eicher is also the founding director of the UW's Economic Policy Research
Center. Its goal is to provide analysis that will inform regional policy
Eicher says the research
center long wanted to analyze the impact of regulation on housing prices, and
found a way when researchers at the University of Pennsylvania developed the
Wharton Residential Land Use Regulatory Index. Based on a survey of more than
2,500 U.S. municipalities, it provided the first nationwide analysis and
comparison of the effects of land-use regulation.
Eicher requested Seattle's
data from the Wharton Index and analyzed it further. That led him to put a price
tag on local land-use regulations.
He received no outside
funding for the project and stresses he makes no value judgments about whether
regulation is good, bad or needs to change.
Rather, Eicher wants the
public to "understand the impact of their choices. There's always a cost
associated with the cityscape. Who wants to have no parks in the city? Or, a
10-story high-rise in Blue Ridge? But there's a cost to that."
Compared with 250 major U.S.
cities, he says, Seattle:
• Is first in terms of the
impact of state political involvement in land issues.
• Is in the top 3 percent for
approval delays for new construction.
• Is in the top 10 percent in
local political pressure influencing land use.
As an example of how this
plays out, Eicher explains that "the statewide growth-management plan gave King
County few options but to require that landowners in rural areas that haven't
already cleared their land to keep 50 to 65 percent of their property in its
'natural state.' This forced greater density in Seattle."
Then a King County referendum
to repeal some of the county's land-use restrictions was judged illegal in 2006
by the state Supreme Court because it violated the state's Growth Management
"The state is intervening to
restrict supply. It's not that there's no land at all," Eicher
Economists hold that housing
costs are driven by supply and demand, and say those factors have certainly
influenced the cost of Seattle's housing.
But Eicher argues that
"demand does not need to drive up housing prices."
Cities such as Houston and
Atlanta, which have few growth restrictions, have shown that. They've been able
to add enough housing to meet demand, so their home prices have risen more
moderately than heavily regulated San Francisco and Boston, which have a harder
time increasing housing.
According to the Wharton
study, cities such as Seattle that have high median incomes, high home prices
and a large percentage of college-educated workers tend to have the most
Sjoblom says that makes
sense: "People with higher incomes want the kind of amenities that regulation
provides," he says. "If you're a homeowner and growth controls are imposed and
housing prices shoot up, you're grandfathered because you own the place. In
theory people will say it's [rising prices] a bad thing, but in practice it's
not hurting them."
Sjoblom says that's why
making the changes that would foster affordability are so hard to get past the
public, some 68 percent of whom are homeowners. "When you bring up specific
things, like allowing multifamily housing in their neighborhood, they have
That frustrates renters, who
suspect they're being priced out. And they're right, according to a
Last summer, King County's
potential first-time buyers earning the median family income ($75,143) had just
37 percent of the financial wherewithal to buy the median-priced single-family
house ($477,000) at the prevailing interest rate (6.47
Five years earlier, when King
County's median-priced house cost $282,500, median-income, first-time buyers
possessed 72 percent of the income needed.
(No breakout statistics are
available for Seattle.)
But various government
regulations make it challenging to add more affordable housing, notes Sam
Anderson. He's executive officer of the Master Builders Association of King
& Snohomish Counties, which has pushed government to rethink some of the
Anderson estimates that
regulatory costs comprise up to 30 percent of the total cost of building a new
house (land costs included). The laundry list of fees and requirements can run
to 30 or more, depending on where the house is built.
Among them, Anderson says,
are transportation, school and park impact fees, stormwater management fees,
critical-areas mitigation and monitoring, pavement requirements and rockery
And then there's the dollar
cost of the process itself.
Building in Seattle can be
very time-consuming compared with nearby cities, because of Seattle's
composed of citizens interested in architecture and development, are located
throughout Seattle; their job is to review commercial and multifamily housing
designs before they're approved.
"Depending on how complicated
your project is, it might take you three or four times to get through it,"
Add together all the various
review and comment periods, and it can take 12 to 18 months to get to the point
of applying for a building permit, she says.
On a 25-unit Capitol Hill
town-house project now under way, Stalzer estimated the various fees (including
consulting and mitigation costs, but not building permits or land prices) have
totaled about $650,000.
"I think there's value in
going through the process because we're building things that have an impact on
communities," Stalzer says. "The difficult part is the process isn't very
In the final analysis, Eicher
believes Seattle's regulatory climate exists because its residents want it. "My
sense is land-use restrictions are imposed to generate socially desirable
outcomes," he says. "We all love parks and green spaces. But we must also be
informed about the costs. It's very easy to vote for a park if you think the
cost is free."
Elizabeth Rhodes: erhodes@seattletime
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