Last week was my first experience with Portland, Oregon. We've been trying to schedule a Strong Towns event there for some time so a trip has been long overdue, but still. When I was in graduate school pursuing a degree in urban and regional planning, it seemed like one out of four lectures contained Portland as a case study and that at least half of my class intended to move there upon graduation. It has a certain lore in my mind.
From an urban design standpoint, downtown Portland didn't disappoint. It's a planner's Disneyland. Block after block of the consistently best urban form I've experienced in North America. I spent a lot of time just walking around and taking it all in. Very impressive.
And perhaps it was the unquestionable greatness of the downtown that made most everything outside of it seem really bad in comparison (although there were some bright pockets there too). Or perhaps it actually was really bad. I had three forays into the outskirts, two by automobile and one by rail, and I was struck, not only by how ordinary by North American standards most of it was, but also by how run down it felt.
We took the MAX -- Portland's light rail system -- out to neighboring city of Gresham. Again, the urban design of each rail stop was amazing; there are clearly some brilliant people working on transportation there. Outside of the right-of-way, however, things got really bleak. For miles along the route, within walking distance of many of these nice rail stops, the housing looked run down and neglected.
It was hard to reconcile what I was seeing with what I was hearing. I was repeatedly told that affordable housing was a huge problem. I met some neighborhood activists in Gresham, one in particular who told me that he used to live near the downtown and kept getting forced further and further out because he couldn't afford the housing. In my tour, I was shown building after building -- all very low value and some quite derelict -- with some enormous price tags attached, millions of dollars for structures a stiff wind away from being condemned.
If housing values are so high, and demand is so high, why isn't the housing stock nicer? Why were many people not maintaining their yards, keeping the paint up and doing the little things you'd expect to see in a place where modest homes were selling for prices well into six figures?
I think one possible answer to these questions gives a clue to the unaffordable housing problem facing Portland and a number of other cities. Before we get into that, however, I'd like to take some time to review -- and question -- the standard reasons given for why housing in Portland is so expensive.
1. So many people want to live here and they'll pay anything because Portland is so nice.
I'm always reflexively skeptical of this kind of thinking. I want to live here and am wiling to pay high prices to do so and thus others must be making a similar decision. This reasoning can give us blinders that keeps us from realizing that different people do different things for different reasons, especially those not in our own economic strata.
Case in point, there was nothing really nice about Gresham. In fact, it was not really nice at all. Why are all these people willing to pay inflated prices to live in Gresham? I don't think it is because they love living 35 minutes by train from Portland. It's not like the people I saw there were living in small, overpriced apartments because they valued the opportunity to ride the MAX into downtown, sip a local latte and eat at a food truck.
Put another way, Portland may be nice and the culture may be great for some, but there are a large number of people who are paying really high prices for sub-par housing and an experience they could get far more affordably somewhere else. While it is a happy notion for people in Portland to believe that they're so wonderful -- and I don't ridicule because, as a Minnesotan, I know everyone living here is well above average -- it doesn't make any sense as the influence of a broad economic trend.
As I've said before, I absolutely can't get enough lobster at $1 per pound. At $25 per pound, I'm more discriminating. At $50 per pound, I'll stick with hamburger. Love of something can drive a market, but only so far.
2. We are not building enough housing to meet demand.
This is the more intellectually rational argument and I heard it a lot. Essentially, there is a supply and demand curve problem. Too much demand and not enough supply thus higher prices. The answer then is to build a lot more housing and eventually....what? Reverse the Portland housing bubble and bring housing more in line with wages? Slow the increases so that people scraping by can continue to scrape by?
I don't buy this argument either. Yes, supply and demand curves are real and the demand for housing certainly drives up price, but I don't find this to be the cause of sustained massive price increases. Supply and demand curves suggest that, when prices increase, demand will decrease when supply stays constant. You can't sustain increasing demand while also sustaining increasing prices and increasing supply. You can do it for a while, but not over many, many years.
This logic would have us believe that, if Portland housing prices fell by 25%, instead of 10,000 people per year planning to move to Portland (supposedly -- more on this in a follow up post), 20,000 people or more would show up year after year until housing prices went back up to what people were willing to pay to live in such an amazing place. Maybe someone can put together a model that pretends to demonstrate this; I don't find the argument credible.
3. It's cheaper than San Francisco.
I heard this one a couple of times: people from San Francisco look at Portland as a huge bargain and are bidding up the prices. It felt like an old wive's tale, something that someone heard or perhaps even experienced once or twice that has now become legend throughout the community in complete disproportion to its actual influence.
Let's say a large percentage of the (supposedly) 10,000 people per year I was repeatedly told are moving to Portland come from San Francisco and other areas with over-inflated housing markets. The theory then is that they are influencing peak prices which is having an economic trickle down effect to all these other marginal places? Again, I think that is a comfortable theory and if I was in real estate or development I would certainly want people to believe it, but it doesn't explain high prices at the margins. Luxury condos: sure. Dilapidated hotels renting for $2,500 per month for a two bedroom: not credible. Something else is keeping the market from finding a lower equilibrium.
4. The Urban Growth Boundary creates artificial scarcity and drives up price.
This is the Randall O'Toole argument and I've thrown it in just so it's not brought up later. It's a ridiculous argument to anyone who has gotten out of the ivory tower, freed themselves of dogma and actually walked around the areas outside of Portland's downtown. There's so much space, so much underutilized property, that it's a ludicrous notion that land scarcity is part of the problem.
But Chuck...without greenfield development we can't build the auto-oriented, single-family homes that the market is demanding. It's such a joke. That's what it is valuing most. If it was just a matter of meeting a massive demand, you would never build single-family homes on cul-de-sacs. The only reason that is even a lament is because a certain kind of developer with a certain kind of financing knows how to make nearly-guaranteed profits delivering it. It's a financial train wreck and, if Portland can avoid it, they will be much better off.
If there is a lack of anything -- and I am really not confident that there truly is -- it certainly is not land for development.
So what is going on? In my next article, I'll put forth an argument that the way Portland has done its rail investments along with the planning theories they've adopted on transit oriented development have combined with a social stickiness in housing to artificially inflate Portland's housing market in a way that is really dangerous. Those dogmatically committed to a certain set of beliefs and/or outcomes in this debate may want to skip my next few posts. If you're a planner, this could be a little depressing. The theories I outlined above are far too comforting and convenient. You've been warned.
If you have your own theory, I'd love to hear it.
Read the next article in this series, "Distorting Housing Prices."
(Top photo by Maciek Lulko)