Growth Management and Housing Prices: The Case of Portland, Oregon
Phillips, Justin, Goodstein, Eban, Contemporary Economic Policy
Portland, Oregon, is well known for its relatively unique urban growth boundary (UGB), a very tight form of zoning designed to control sprawl. The UGB has recently been criticized for raising housing prices. From a theoretical perspective, the UGB will put upward pressure on land and thus housing prices, but the magnitude of this effect is uncertain. Increasing density should substitute for higher land prices, partially offsetting any reduction in the supply of housing. In addition, at any given moment, speculative factors influence housing price levels in bull markets such as the one Portland has been experiencing. This article presents an econometric analysis assessing these conflicting effects. We find the UGB has created upward pressure on housing prices, but the effect is relatively small in magnitude. (JEL R21, R52)
In 1995, the Wall Street Journal ran a front-page story with the lead: "Portland, Oregon, Shows Nation's City Planners How to Guide Growth." This article is illustrative of the universal praise Portland has, until recently, received as a model of intelligent urban planning. Much of Portland's success has been attributed to the urban growth boundary (UGB). Instituted in 1979, the UGB draws a very tight zoning band around the city, reducing sprawl and promoting high density and infill development.
However, by 1998, a different spin on the UGB was appearing in the national and international media ranging from the Economist to the Washington Post. The UGB, it was alleged, was precipitating an affordable housing crisis in Portland. Articles in the local daily paper, the Oregonian, also appear to accept as a fact of life that the UGB is partially if not largely responsible for the runup in housing prices (Economist, 1997; Claiborne, 1997; Nokes, 1997a). And yet, other cities in the western United States without UGBs have experienced comparable increases in housing prices. Despite the recent increase in the Portland area, median housing prices are now only about average for western cities. Do the housing price increases in Portland reflect the real supply constraint imposed by the UGB, or has Portland fallen prey to a more conventional housing market dynamic, powered by a combination of increased demand and speculation?
Despite the international interest these questions have generated, there has been no serious attempt to assess the impact of the UGB on Portland housing prices. This article seeks to fill that gap. Section II presents some background on the UGB; section III considers the theoretical impact the UGB should be expected to have on land and density, and on housing prices. Section IV estimates a cross-sectional model of intercity housing prices to assess the degree to which Portland's housing prices are out of line with underlying fundamentals. We conclude that the UGB has had a small, and statistically weak, upward influence on housing prices.
II. THE URBAN GROWTH BOUNDARY
In 1979, the Portland metropolitan region adopted an urban growth boundary, complying with an Oregon law mandating the creation of such boundaries across the state. During that same year, the metropolitan area took the additional step of creating a powerful regional government, Metro, to oversee the UGB and plan for urban growth. The combination of these actions made the Portland region the nation's largest area within a long-range urban containment boundary and the only area in the United States with an elected regional government.
Over the past 18 years, Metro has maintained the political strength necessary to hold the size of the urban growth boundary steady. Despite a sharp rise in population, the total area of the boundary has expanded by only 5 square miles in the years since its inception. This is quite a feat when one considers that the land size of the city of Denver (which has had a population growth rate similar to that of Portland) has increased by 180 square miles in the past 37 years (Katz, 1997, p. …