Willamette Week| News| Politics

Next time someone tells you Portland is one of the least affordable housing markets in the country, ask where they got their info.

Portland ended 1998, as it did 1997, ranked as one of the nation's worst markets for home buyers, according to the National Association of Home Builders. Out of 187 urban markets, only San Francisco, Eugene and Santa Cruz, Calif., were rated less affordable than Portland by the NAHB Housing Opportunity Index.

Those rankings are not trivial. They shape public policy and perception. The Oregonian used high housing costs to editorialize in favor of expansion of the urban-growth boundary. Metro councilors Jon Kvistad and Don Morissette did the same with their recent votes to relax the UGB. Portland City Commissioner Erik Sten pointed to the ranking this fall when he pushed the City to spend more money on subsidized housing.

Perhaps more important, the rankings have implications for an emerging national debate over how to control suburban sprawl. That may be one reason the NAHB index is coming under increasing scrutiny--and criticism. "I think the ratings probably give us a bum rap," says Rod Monroe, the new presiding officer of the Metro Council.

Consider, for instance, Eugene's standing as the second least affordable market in the country. What makes this assertion most astonishing is the fact that Eugene's median home sale price of $128,000 is $10,000 below the national median. Yet Santa Cruz, which is supposedly more affordable, had a 1998 median home price that, at $260,000, was twice as high as Eugene's.

How could that be?

The answer, according to NAHB economist David Crowe, is that the "opportunity index" is based on the ability to buy a home and puts as much emphasis on income as it does on home price. Thus, Eugene's relatively low median household income of $39,700 makes housing expensive and unattainable for many residents.

But the income data is suspect for two reasons, critics say. First, it doesn't account for Eugene's student population; second, it's based on 1990 census data and doesn't fully reflect Oregon's prosperity in this decade. "Those are legitimate questions," says Crowe. "The index isn't based on a current survey."

Crowe maintains, however, that if income numbers are inaccurate, they are probably equally inaccurate for all cities. Therefore, he says, it's still the ratio of income to home price that really counts.

Again, questions arise. For instance, Portland, Seattle and Salt Lake City all have the same income-to-housing price ratio. In each city, median household income is 31 percent of the median home price. Yet Seattle is ranked far better than Portland (32 spots ahead) on the affordability scale. Ditto for Salt Lake City (22 spots ahead).

How's that?

Crowe says the key is distribution of sales prices. A greater share of Salt Lake City's sales--about 3 percent more than in Portland--occur in a more affordable range below $125,000. Portland has more sales--approximately 6 percent more than in Salt Lake City--at the high end of the scale, above $250,000.

"We don't have a wide range of distribution," agrees Jon Chandler of the Oregon Building Industry Association. As a result, the home builders claim that most Portland households with median incomes can't afford to buy homes at the median home price of $159,000.

This logic brings more questions. "We shouldn't be penalized for our prosperity," says John Fregonese, former growth-management director at Metro. The Portland area has experienced an influx of affluent high-tech workers who want pricier housing, Fregonese explains, and they have skewed the sales distribution toward more expensive houses. But that doesn't mean the average Portlander can't find an affordable home, he says.

Critics cite other weaknesses in the home builders' index. For one, it uses 1990 property-tax data to calculate housing costs but doesn't take into account Oregon's lack of a sales tax, thereby underestimating available income. For another, it doesn't account for Oregon buyers who can make larger than assumed down payments on new houses because of the rising resale value of their old homes.

Although the debate about the home builders' index may seem a local--and esoteric--squabble, it actually has national importance.

Because of the rankings, a bad rap on Oregon's housing costs--and its urban-growth boundaries--is being spread around the country.

The rap goes like this: Portland and Eugene are so unaffordable because their UGBs restrict land supplies, thereby driving up prices. "I hear it all the time," says Metro Executive Officer Mike Burton.

So does Doug Porter, president of the nonprofit Growth Management Institute in Chevy Chase, Md. "The home builders really did a job on Portland," he says. "They've really been successful in selling the line that the UGB is driving up housing prices. I've been at a number of conferences around the country where the point has been made that UGBs have driven up prices beyond the reach of the ordinary man."

It should come as no surprise, adds Porter, that the home builders would want to link the high cost of Portland's housing to its UGB. In general, the building industry is opposed to government restrictions, such as urban-growth boundaries. But UGBs are being adopted in places like Ventura County in Southern California.

In fact, in November, voters approved nearly 200 state and local ballot initiatives on curbing sprawl, according to The New York Times. Vice President Al Gore has made "urban livability" and the battle against sprawl a potential campaign theme for his likely presidential bid next year. This week the Clinton Administration unveiled a $10 billion "smart growth" program, which drew some criticism from NAHB President Charlie Ruma.

All of this suggests that the home builders' rankings will only become more controversial in 1999. The best way to limit confusion and suspicion, says Chandler, is to ascertain exactly how much UGBs add to Oregon housing costs. Then a similar study should be done on the UGBs' economic benefits--for instance, what the emphasis on compact development saves in new sewer and highway costs.

Only then, says Chandler, can Oregonians--and people in the rest of the country--have an informed debate about the true causes of high housing costs in markets like Portland.

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Willamette Week | originally published January 13, 1999