Home prices skyrocketing? Blame government

Eric Lohnes -
Eric Lohnes
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On Jan. 6, 2007, The Seattle Times published a column co-written by the executive director of Futurewise, a left-wing environmental organization, and the executive director of the Housing Development Consortium, a Seattle-based trade association of nonprofit housing developers.

The title of the column was, “Don’t Blame Growth Management for Higher Housing Prices.”

Central to the authors’ argument was the assertion that strong demand for housing has been and is the primary driver behind Washington’s skyrocketing home prices in recent years.

The column refuted claims implicating growth management and environmental laws as the cause of escalating home prices to be contrary to the evidence, “misleading” and “unwarranted.”

The next day, the column received a rebuff via letter to the editor by Wendell Cox, a well known international demographic, urban policy and transportation consultant, stating that growth management is, in fact, the precise reason affordability has been destroyed in many locations.

Cox reminded the two columnists it is the law of supply and demand that determines prices, not simply the law of demand.

Fast forward one year later. On Feb. 15 The Seattle Times published the results of a study by Theo Eicher, an economics professor and the director of the Economic Policy Research Center at the University of Washington, which further demonstrates the

veracity of Cox’s claim.

The study, “Growth Management, Land Use Regulations, and Housing Prices: Implications for Major Cities in Washington,” concludes with solid evidence the dramatic rise in home prices in Washington state since 1989 have been the result of restrictive regulations that have artificially reduced supply.

According to the UW study, between 1989 and 2006, government regulations constituted 44 percent of the total cost of a Seattle median-priced house in 2006, 43 percent of a median-priced house in Everett and Kent, 35 percent in Tacoma, and 30 percent in Vancouver.

Eicher thus calculated our state’s land use restrictions and regulations added approximately $200,000 to the median-price of a house in Seattle in 2006; $121,000 to the price of a house in Kent; $111,000 in Everett; $82,000 in Tacoma; and $71,000 in Vancouver.

In comparison, Eicher found growth in income and population accounted for only $36,000 of the $448,000 price tag of a median-priced house in Seattle during 2006; $24,400 of the $281,600 house in Kent; $7,500 of the $258,000 house in Everett; $8,500 of the

$228,300 house in Tacoma; and $49,900 of the $233,600 house in Vancouver.

Among all five cities, the cost of restrictive regulations far outstripped the cost contributed by demand.

Even in Vancouver, where demand has had the largest impact, the impact of regulation

added significantly more to the price of a home than income and population.

The conclusion drawn from the UW study is that Washington’s inflated home prices and

affordable housing crisis are largely the result of land-use regulations and laws such as the Growth Management Act and restrictive stormwater rules — not to mention costly

permit delays and impact fees.

So contrary to the claims of Futurewise and the Housing Development Consortium, so-called “Smart Growth” is to be blamed for the ludicrously high home prices that have spurred what everyone readily agrees is an affordable housing crisis.

The foremost obstacle to housing affordability in Washington is state government.

But there is a silver lining, since home prices have not been determined primarily by free market supply and demand forces, rather by the political and legislative forces of our state, there is much room to rethink and correct past decisions that have added substantial costs to housing.

Eric Lohnes is a tax and housing

analyst with the Building Industry

Association of Washington.

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