I'm hearing the frustration of many of you regarding my two articles on housing affordability in Portland (What's the matter with Portland and Distorting Housing Prices). In the history of Strong Towns, I've gotten this kind of feedback every time I've encountered a deeply held belief. And really, it's the deeply held belief -- the dogmatic adherence as if to a religious doctrine -- that raises my alarm bells.
When I'm in Portland and everyone tells me how much Portland is growing, I find it interesting. When the issue of housing affordability comes up again and again, it is always tied to the agreed upon narrative that Portland is growing and will continue to grow, world without end. When I see neighborhoods where the homes are $500,000+ yet they look like they should be $50,000, the narrative is, of course, Portland is growing. When I run into people making minimum wage working retail and they are somehow living in Portland despite paying thousands a month in rent, well....Portland is growing.
The thing that really makes me skeptical is that the Portland is growing narrative is just really convenient for those who hold that belief. Who would not want their choice of places to reside confirmed by hordes of people being willing to pay ever more irrational prices for housing? Of course they want to live here, Portland is growing.
And don't we kind of need to believe that? I mean, I'm going to be more willing to pay exorbitant prices for a home -- and cash out equity to make ends meet -- if I am convinced of the belief that even more irrational people will follow and take prices higher (in stock trading, we call this the greater fool theory).
Portland is growing is also really convenient for the local government and all of those who theorize, plan and design the systems of Portland's growth. Inflated housing prices make it tons easier to balance the annual budget; you can get used to a tax base that grows by 10% or more each year. It's fun to work with big budgets doing big projects to handle this big challenge of Portland is growing. If we can focus on accommodating the growth that we all agree is happening -- world without end -- then we don't have to ponder very deeply the effects that our policies are having on housing affordability. High prices are obviously due to a lack of supply and so, if we want to deal with the impacts of high prices, we just continue to work harder and harder on accommodating all that growth. It's just such a comforting narrative, which is why I'm highly skeptical of it.
That and I hear the same thing in places like Austin, where I'm at today. Austin is awesome and everyone wants to be here and so, despite the laws of supply and demand and the impact that price has on reducing demand, the laws of supply and demand tell us that it is a lack of supply that is increasing price. The only way that's not an incoherent statement is if you believe that growth is a given.
Austin is growing. Portland is growing. Of course.
So I've received a number of emails on this including one yesterday with the subject line Suspicious Economics in Portland Articles. Here's what that email said:
Re: Suspicious Economics in Portland Articles
Reading your last couple of articles on Portland, I'm disappointed by the sloppy economic analysis. I say this with utmost respect for your work and Strong Towns - you've changed my mind about many things. Your analysis of supply restrictions seems to assume a fixed number of people living in Portland.
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.
Portland's population has been increasing for decades now, and people and jobs are increasingly attracted to dense city centers. Both of these will move a demand curve rightward. Yes, this increases prices, and at some second-order level this might slow the growth of the demand curve, but demand has and will continue to increase. If supply is not increased commensurately, prices will continue to rise.
Then you resort to the standby that the housing market is in some sort of bubble.
Reverse the Portland housing bubble and bring housing more in line with wages?
The logic seems to be that higher prices must mean there's a bubble, but that seems silly when you look at high prices in dense cities with supply restrictions all over the world. Places with flexible supply like the sunbelt cities, Houston, or even Tokyo have (comparatively) low prices, despite huge population growth.
The answer then is to build a lot more housing and eventually....what?
Then the equilibrium point on the increasing demand curve and increasing supply curve will land at a lower (or at least slower-rising) price, and a rapidly increasing quantity. This is a much simpler argument, and it's how almost every other market for goods works, so why are you dismissing it out of hand?
See what I mean? This email is a series of very comforting assertions and beliefs. Growth is a given; it is unaffected by price. Demand is not subject to price equilibrium of the supply/demand curve, only supply is so impacted.
Chuck, it's such a simple argument, why are you dismissing it? Because it's not simple enough, it's too affirming for those who want to believe it and it doesn't adequately explain the world as I have experienced it.
In my last piece, I explained how large jumps in the development pattern -- such as those planned for Portland's many TOD sites -- dramatically distort land prices upward while unnecessarily stagnating underutilized property, land that would otherwise be improved. In my next post, I'm going to put forth my notion of how that distortion -- which is actually a simpler explanation than the entire voodoo belief system of ignoring the effect of price on demand -- is transmitted across the greater Portland area. In a subsequent post, I'll then propose a simple set of policies that would prick Portland's housing bubble, move prices closer to their supply/demand equilibrium price point and thus restore housing affordability, albeit by negatively impacting the government's cash flow as well as the paper assets many Portlanders believe is theirs.
Read the next article in this series, "Spiking a Rising Tide."
(Top photo by Paul Horner)