Smart Growth and Its Effects on Housing Markets:
The New Segregation

Introduction and Executive Summary

Terry Miller is a 45-year-old waitress in the Fairfax County, Virginia suburb of Washington. Although Miller has over $2,000 a month to spend, she and her four children live in a hotel and receive county help because she cannot afford most rents. The hotel is seedy, but it's a step up from when the family lived in their van in a grocery store parking lot.

Miller looked within a 10-mile radius of her job, but could not find affordable housing. The average rent in Fairfax County is $1,130 a month, and she faced problems securing decent housing for reasons that ranged from the size of her household to her meager income. When the family was living in the van, their situation was worse. Because the Millers had no fixed address, the children could not be enrolled in school. If the children weren't in school, Terry Miller couldn't work, because she had no childcare.

The problem that Miller and countless others are forced to deal with nationwide is a lack of affordable housing. In Fairfax County, new businesses have eagerly moved in while government planners have stifled housing development. During the 1990s, Fairfax County gained approximately 166,000 jobs while only 56,000 new dwellings were built. Due to existing development restrictions, some places in the area in which the Miller family hoped to live was seeking to live only allow one home per five acres of land. In the rest of the county, one per half acre or more is now the norm.

The price of a home built on five acres of land in a desirable area is far too steep for a single mother of five living on a modest income.

Numerous cases like the Millers' led the National Center for Public Policy Research to commission this study to quantify the effects of so-called "smart growth" — a more objective term would be "restricted growth" — policies on minorities and the disadvantaged.

The Effects of Restricted Growth

Restricted growth policies are designed to preserve open space and reduce motor vehicle usage through limitations on the geographic expansion of metropolitan areas. Such policies necessarily — as one of their goals — reduce the land available for home building. In other words: site restriction.

Concerned that simple supply and demand market principles dictate that a reduction in the availability of housing will push up housing prices, and aware that minorities in the U.S., on the average, have lower incomes than other Americans, The National Center for Public Policy Research's Center for Environmental Justice set out to determine if restricted growth policies are reducing homeownership opportunities for minority Americans.

To do so, we engaged the services of the respected econometrics firm QuantEcon, Inc., of Portland, Oregon, commissioning an objective economic analysis of the issue. The study that follows is QuantEcon's complete, unaltered report.

QuantEcon's study examined the site restrictions caused by the restricted growth policies of Portland, Oregon, the metropolitan area with the most severe restricted growth policies in the United States, and answered this question: if Portland's severe restricted growth policies had been in effect nationally over the last decade, what would have been the effect on housing opportunities for minorities and other Americans?

QuantEcon determined that had Portland's policies been applied in major metropolitan areas nationwide over the last 10 years, over a million young and disadvantaged families, 260,000 of them minority families, would have been denied the dream of home ownership. Portland-like site restrictions would have increased the average cost of a home by an additional $7,000 - over $10,000 in 2002 dollars. For those unable to purchase homes, the cost of renting would have risen by six percent.

We have dubbed this process of site restriction "Portlandization," and found that varying degrees of it exist in a number of regions. Restricted growth policies are a major, but not the only, cause. Site availability can be restricted in a number of other ways, including natural barriers and large-scale government land ownership.

In November 2000, the last election for which complete data is available, across the entire U.S., 553 ballot initiatives were considered on the issue of controlling rates of development, mostly motivated by public perception that that urban sprawl rapidly is consuming America's available open space. Seventy-eight percent of these initiatives were approved. Outside of the ballot box, planning boards also are instituting similar rules.

Expected home price inflation was found to be greater than expected in most of the states that embraced smart growth, including Oregon, Washington, Tennessee, Kentucky, Pennsylvania, and Colorado. Notable exceptions were California, Hawaii and Vermont. The first two were in economic recession, and had home price bubbles that burst during that decade. Vermont is possibly an anomaly, although the site availability index indicates that it was not practicing a particularly effective variation of site supply restriction.

Paradoxes and Problems of Restricted Growth Policies

Key findings of the QuantEcon report:

Conclusion

The policy of restricting growth through limiting site availability in favor of open land achieved none of its goals: reduced sprawl, more livable communities and decreased auto travel.

It has, however, harmed individuals and families, disproportionately harming minorities and the poor.

As the study's author, Randall Pozdena, Ph.D., put it in his own conclusion to the study: It is difficult to make a case for the site-supply restrictions promoted by advocates of smart growth. It is apparent both from theory and the available data that restricting the supply of development sites is bound to raise home prices, everything else being equal.

Insidiously, the burden of site-supply restrictions will fall disproportionately on poor and minority families. Families who already owned homes at the time that smart growth policies were embraced, of course, enjoy some immunity from the effects of smart growth on housing costs. However, for new or young families, and families that rent their homes, the impact of higher home values and rents is a significant burden.

The analysis in this report suggests that more than a million families will be adversely affected by site supply restrictions of the Portland type advanced in the name of smart growth.

— The National Center for Public Policy Research November 21, 2002 (Complete Report in pdf format)