Regulations may increase rather than decrease property value
UPDATE 6/8/07: The study I mentioned in this post was was based on data collected and analyzed by two researchers at Oregon State University. Those researchers, William Jaeger and Andrew Plantinga, have produced a more complete report (pdf) containing a full economic analysis and no editorializing. The conclusion, however, is basically the same: there’s no evidence to support the claim that Oregon’s growth management protections have harmed property values, at least in aggregate.
When Measure 37 was up for a vote in 2004, supporters claimed that Oregon’s planning laws were so draconian they reduced property values by $5.4 billion per year. That eye-popping figure may be one of the central reasons voters were inclined to support the measure. (Voter support has since severely evaporated.) As it turns out, however, that $5.4 billion cost to Oregon’s property owners was a chimera.
To unmask the $5.4 billion illusion, Georgetown University’s Law Center just published a rigorous empirical study of trends in Oregon property values and found that all those land-use regulations have cost, well, not much at all. In fact, they may have added value, at least on average.
I won’t walk blog readers through the whole study, but the Georgetown report should be required reading for those following the issue closely: it represents by far the best-researched examination of the question to date.
Perhaps the most damning finding is one of the simplest: a comparison between property values in Oregon and other states from 1965 to 2005. As it turns out, Oregon’s highly-regulated property slightly outperformed values in neighboring California and Washington, though it lagged Idaho by a little. Oregon also outperformed the national average.
And in an appendix, the report also contains an especially a detailed comparison between similar counties in Oregon and Washington spanning several decades. The comparison is apt since there were very similar economic and demographic forces at work in both Northwest states, but divergent growth management policies for most of the period (especially prior to the mid-1990s, when Washington’s growth laws went into effect). With adjustments for parcel size, zoning, and so on, it turns out that Oregon’s property value appreciation does at least as well as Washington’s and perhaps a little better.
As I said, the Georgetown study is the most complete to date. But I thought it was especially interesting because during the "property rights" ballot measure mayhem of 2006, I wrote a blog post describing some research that a UW extension student was doing on property values in King County, Washington. The result was pretty much the same: properties in highly regulated areas did as well, or maybe better, than properties in lightly regulated areas.
But how is that possible? How can restrictions on property increase value? Well, you’ll have to read the report for a full explanation. But the simple answer is that while growth regulations may decrease the development potential, they can raise values through amenity values, scarcity, tax reductions, and agricultural protections, just to name a few.
Now, it’s worth remembering that this report doesn’t refute every possible argument for regulatory takings laws like Measure 37. It doesn’t fully address, for example, whether growth laws are fair to each and every individual. What it does prove — rather clearly, in fact — is that on average, Oregon’s smart growth laws did not cause an undue reduction in property values. Therefore, Measure 37 "fixed" a problem that never existed in the first place. And that "fix" is coming at an awfully high price — not only to land-use, but also to community and economic certainty, as Sightline Institute has detailed elsewhere.
The Georgetown report is co-authored by John Echeverria, perhaps the nation’s foremost authority on takings. Read the full thing here (PDF).