Affordable in name only: Oregon’s housing problem

Those wacky people in Oregon are doing everything they can to make housing less affordable: “We want you to visit our state,” said one of Oregon’s most famous governors, “but for heaven’s sake, don’t move here.”

A law that passed when he was in office limited urban growth to less than 1.5 percent of the state, which has tripled land prices and at least doubled home prices from what they would be without that law.

Despite this law, Seattle’s home prices have grown much higher than Portland’s. According to Zillow, the median Seattle-area home is worth almost $100,000 more than one in the Portland area. Washington didn’t pass a growth-restriction law until almost two decades after Oregon did. 

{mosads}In an apparent effort to prevent a flood of Washingtonians from moving into more affordable Oregon, Portland and Oregon elected officials have passed numerous laws and ordinances that will make Oregon housing even less affordable than it was before.

In 2016, the Oregon legislature allowed cities to impose affordable-housing mandates (sometimes called inclusionary zoning) on developers. These mandates require developers to sell or rent to low-income families a small percentage of the homes they build below their costs. This forces developers to sell the remaining homes they build at higher costs to make up for their losses.

An iron law of real estate says that anything that makes new homes costs more leads to an increase in the prices of all housing, as existing homeowners take advantage of the higher prices when they sell their homes.

Thus, affordable-housing mandates make housing less affordable for everyone except the lucky few who get the below-cost homes. 

Then, Portland passed a measure increasing property taxes on existing homes in order to subsidize the construction of “affordable housing.” Since banks take property taxes into account when deciding whether someone can afford a mortgage, higher property taxes makes housing less affordable.

Much of the housing that is being built is affordable in name only.

Other Oregon cities raise money for “affordable housing” by charging homebuilders a tax on each new home. Again, that makes both new and existing homes more expensive.

The real problem is that “affordable housing,” which is housing built by government or charities for low-income people, has nothing to do with “housing affordability,” which is the affordability of housing for everyone in a region. Affordable housing is the wrong tool to use to make housing more affordable. 

Portland has also passed rules requiring landlords to pay tenants up to $4,500 in moving costs if the tenants are evicted or forced to move by rent increases. This benefits existing tenants but discourages people from building new rental housing.

The latest effort to make housing less affordable is a statewide rent-control law just passed by the Oregon legislature. As every economist knows, rent control makes housing less affordable by discouraging the construction of new rental housing.

Even with all of these laws and regulations, it will be hard for Oregon housing prices to catch up with those in Washington, much less California. 

{mossecondads}Oregon planners claim they can improve housing affordability without removing the growth restrictions by “building up, not out,” that is, by building denser housing in the existing urban areas. Yet denser housing costs a lot more per square foot than single-family homes, meaning they are only “affordable” if they are tiny.

One proposed “affordable” high-rise would cost $650 a square foot to build. To make it affordable, two-bedroom apartments must be just 660 square feet. In places without growth-restrictive laws, new homes cost a little more than $100 a square foot and average 2,200 square feet in size. 

The only way to truly restore Oregon’s housing affordability is to abolish the growth restrictions that prevent affordable, low-rise suburban development. Oregon politicians who talk about making housing affordable without abolishing these restrictions aren’t really serious about affordability. 

Randal O’Toole (rot@cato.org) is a senior fellow with the Cato Institute and author of “American Nightmare: How Government Undermines the Dream of Homeownership.”