Growth boundaries only limit choices while bringing higher prices
Over the last century, urban planners have wrestled with how to lay out communities to serve multiple constituencies — those of residents, workers and commuters — and using planning and zoning to respond to those constituencies.
An unintended consequence of planning and zoning decisions can be the impact on housing and land prices.
One such issue is the development of urban growth boundaries — a line on a map that delineates where growth and development is allowed to occur. Frequently, urban or suburban development — such as housing additions, shopping centers and office buildings — are not allowed to be built outside of the boundary, with a goal of containing urban development. Often, the only development that can happen outside of a growth boundary is a house on multiple acres, essentially limiting use to agricultural development or a house owned by someone wealthy enough to own several acres.
The first urban growth boundary in the United States was adopted by Lexington, Kentucky in 1958 (Gray, 2019). The state of Oregon mandated them for all communities in 1973, to “protect farms and forests from urban sprawl and promote the efficient use of land, public facilities and services inside the boundary” (Oregon Metro, und.). Growth boundaries are also common in Washington, California and in some municipalities in Colorado and Florida.
However, growth boundaries can lead to significant consequences. By containing development to a defined area, it enforces density and disincentivizes the building of single-family homes. These conflicting realities — the planners’ desire to contain “sprawl” and homeowners’ desires for single-family homes, can lead to a clash that leads to a shortage of available land as demand grows, thus forcing up prices. After all, single-family detached units comprise two-thirds of the housing stock in the United States, as of 2018, a number that indicates a high degree of consumer preference for such homes (Urban Institute, 2020, p. 12).
Growth boundaries have a significant effect on housing and land prices. When Melbourne, Australia expanded its UGB in 2010, the majority of respondents living in the area to be annexed into the UGB supported the expansion of the boundary or wanted their property to be included inside the expanded boundary, in large part due to their desire to see an increase in property values, due to the increase in potential uses and making it more marketable (Taylor, 2016, p. 267). Data showed that to be the case. After the boundary was announced, the median price of land went from slightly higher to four times higher inside the boundary than outside it, and was 12 times higher three years after implementation. Land prices outside the boundary stayed steady, but skyrocketed inside it. In Portland, Oregon, the difference in assessed valuation was more than tenfold — $16,000 per acre outside the boundary, $180,000 per acre inside it (Cox, 2010).
In the United States, the graphs below show a significant growth in housing prices in metro areas with growth boundaries — Denver, Miami and Portland — compared to similarly-sized metro areas. Denver adopted its growth boundary in 1988. Miami implemented its in 1983.
In all three, it is notable that as housing demand and prices rose nationally, housing prices rose more rapidly in the community with the UGB than in those without it.
One can see Denver’s housing index began to rise higher than that of similarly-sized cities approximately 25 years after the growth boundary was implemented, indicating that housing prices began to skyrocket after the city was built out to the boundary. A similar trend is shown in Miami — a spike 20 years after the boundary was implemented that recedes during the Great Recession, then picks up again. Portland also saw a significant pre-Great Recession spike that picked up again after the economy rebounded from the recession and now is one of the most expensive metro areas in the United States. But for the first 20 years after the growth boundary was implemented, Portland was a cheaper city to live in than similarly-sized Pittsburgh and San Antonio. Essentially, growth boundaries initially are not a problem as long as there is buildable land in a community, but over time, as populations grow, that puts extra pressure on the suddenly-inelastic supply of land, whereas in a metro area without a growth boundary, development is allowed in outlying areas and growth can be more easily-absorbed. Thirteen of the 16 most expensive housing markets in the U.S. possess urban growth boundaries.
Needless to say, there is a strong correlation between the presence of an urban growth boundary and high housing prices. First of all, communities with UGBs tend to have higher housing prices than similarly-sized communities without them. That is not always the case — Austin, Texas, for example, has the nation’s highest housing prices and Texas law prevents growth boundaries — but there may be other zoning restrictions that are contributing to the high housing prices, in addition to the surge in demand the city is experiencing.
But in general, it is. Portland, Seattle, Miami, Charleston, Denver and even smaller cities like Boulder, Colorado and Bend, Oregon — all of which have growth boundaries — are among the most expensive markets in the United States and are significantly more expensive than their peers. Income and population, while statistically significant, have very small coefficients. Population growth and per capita income have shown to have small impacts on housing prices. But the presence of an urban growth boundary will add 66 points to the housing price index in a given community.
Knowing this, a local government can make a significant number of decisions that can impact housing prices.
Many of the factors affecting housing prices are often due to market forces — the presence of highly-desired or high-paying companies, geographical barriers, desirability of the community due to location near natural features or entertainment, but it remains constant that communities with urban growth boundaries generally tend to be more expensive than communities without them. Essentially, the recommendation is that a local or state government that is concerned about housing affordability should remove as many zoning restrictions as possible and eliminate growth boundaries, thus removing one significant restriction on the supply of available, buildable land.
A growth boundary is an artificial barrier to building, and removing it would increase the supply of available land in a metropolitan area. Simple economics indicates that an increase in supply would lead to a decrease in price, as purchasers have more options to choose from and can choose the least expensive one, and more suppliers means more competition among sellers for buyers. That would also, especially in tight, high-demand housing markets like Seattle and Portland, lead to a greater demand for land.
If a community is concerned about housing affordability, one of the most important things it can do it remove barriers to growth and allow market forces to work. Removing artificial barriers like growth boundaries would go a long way in increasing housing affordability in growing communities where the land inside the growth boundary is largely built out.
References
Cox, W. (2010, Oct. 12). “Property Values 11 Times Higher Across Portland’s Urban Growth Boundary.” New Geography. Retrieved Sept. 5, 2022 from https://www.newgeography.com/content/001808-property-values-11-times-higher-across-portlands-urban-growth-boundary
Gray, N. (2019, May 16). “America’s First Greenbelt May Be In Jeopardy.” Bloomberg.com. Retrieved Sept. 5, 2022 from https://www.bloomberg.com/news/articles/2019-05-16/lexington-debates-the-future-of-its-greenbelt
Oregon Metro (und.). “Urban Growth Boundary.” OregonMetro.gov. Retrieved Sept. 5, 2022 from https://www.oregonmetro.gov/urban-growth-boundary
Taylor, E.J. (2016, June): “Urban Growth Boundaries and Betterment: Rent-Seeking by Landowners on Melbourne’s Expanding Urban Fringe.” Growth and Change, 47(2), 259–275. Retrieved Sept. 5, 2022 from https://eds-s-ebscohost-com.ezproxy.snhu.edu/eds/pdfviewer/pdfviewer?vid=5&sid=bbfdabab-4afc-49f6-bf38-420b3a320895%40redis
Urban Institute (2020, January). “Housing Supply Chartbook.” Retrieved Sept. 5, 2022 from https://www.urban.org/sites/default/files/publication/101553/housing_supply_chartbook_1.pdf