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 high?
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 intentions.
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.
"In a nationwide study, it can be shown that Seattle is one of the most regulated cities and a city whose housing prices are profoundly influenced
by regulations," he says.
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 says.
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 adds.
(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 issues.
"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 debates.
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.
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http://seattletimes.nwsource.com/html/businesstechnology/2004181704_eicher14.htmlSource- Seattle Times
