Case Study: Selling Smart Growth in Portland

In the antisprawl capital, the holy grail is a 10,000--square--foot lot.

November 1, 1999

When Vice President Al Gore announced earlier this year that one of his presidential campaign themes would be smart growth--aka limiting urban sprawl--he turned up the heat on an issue that has been gathering steam in many parts of the country for most of this decade.

Antisprawl bills have been enacted or are being proposed in a number of states, and it’s safe to say the country is heading into an era when new residential development will be more closely scrutinized than at any other time in the last half century.

There are few issues that more directly affect the real estate industry than sprawl. In some ways, REALTORS® are caught in the middle. The upside of sprawl is that there’s generally lots of product to sell in markets with few controls on development. The downside is that uncontrolled sprawl undermines the stability of existing neighborhoods and contributes to a whole host of environmental and aesthetic problems.

What’s life like for real estate salespeople in an antisprawl environment? What changes and what stays the same? In this regard, no city is as closely associated with limiting sprawl as Portland, Ore., where tight controls on growth have been a fact of life for more than 20 years.

Back in 1973, alarmed by the uncontrolled growth around many California cities, the Oregon Legislature passed an innovative land-use bill that required all the state’s municipalities to create urban growth boundaries.

The purpose of the boundaries was to contain development and prevent the wholesale destruction of farmland and wilderness areas. When creating the boundaries, cities were asked to include enough land for 20 years of projected growth.

Strict zoning laws established by the bill also made it nearly impossible for development to occur outside the metro area. In most cases, the only way to build a new house outside the boundaries is to tear down an existing one.

In the case of Portland, a wavering line was drawn around the city and its suburbs--24 communities in all, covering 364 square miles--and a new layer of regional government created to administer the plan.

In many ways, the legislation has been successful. Portland has grown dramatically over the past two decades--from a relatively sleepy lumber and agricultural center to its current status as a manufacturing and high-tech mecca led by such companies as Intel and Nike.

The population has also zoomed--from 1.33 million in 1980 to 1.84 million today--and almost all of it is contained within the original boundary area.

There’s no shortage of positive urban statistics: Downtown office space has tripled since the boundary was put in place; more than 40 percent of downtown workers use mass transit (the highest percentage of any city outside the Northeast); property values are up; and residents are never more than a half hour’s drive from some unspoiled corner of nature.

So what’s the problem? Affordability, for one. “The price of housing has gone through the roof,” says Bob Baker, an associate broker with Tri-Star Properties in suburban North Plains. “We’re now one of the least affordable cities in the country.” According to the National Association of Home Builders, out of 181 communities around the country, Portland ranks 174th in terms of affordability.

“The boundary has driven the price of land to $100,000 an acre and up, depending on the zoning,” says Scott Leeding, office manager and sales associate for Ken Hoffman Inc., REALTORS®, in suburban Clackamas.

Several years ago, Baker did a study that tracked price increases on new-home components in one fast-growing suburban community over a five-year period. “I looked at everything you need to build a house--land, materials, labor--and found that most of the components went up by an average of 15 percent to 20 percent,” he says. “Two items went up more than that. System development charges--such as permit fees--went up 30 percent, and land went up 310 percent.”

Other studies report considerably lower numbers for the city as a whole, but there’s no doubt that land costs have increased dramatically.

Detached single-family housing in many parts of metro Portland now starts at about $150,000, say salespeople, which is out of the range of many first-time buyers. (According to data from the local MLS, the average sales price of a home in Portland is $187,700 and the median price $161,000.)

“It’s an odd situation,” says Ron Crutcher, vice president of government affairs for the Portland Metropolitan Association of REALTORS® and an associate broker with John L. Scott Real Estate in suburban Beaverton. “The bottom is rising to meet the top. By that, I mean that entry-level prices are rising far more steeply than those in the middle range and at the top end. The result is that there’s a shortage of entry-level product, whereas houses in the middle range are just sitting there.”

Leeding adds that “the $250,000 to $300,000 houses aren’t turning as fast as they should” because of pricing problems. “A lot of those houses are in that price range not because of the house but because of the cost of the land.”

The tight restrictions on growth are also changing the very nature of many neighborhoods. Lot sizes are getting smaller--the average is now about 6,000 square feet, and 2,500-square-foot lots are not unusual--and density is projected to double in some areas over the next two decades.

That level of density, though not unusual in many large Eastern cities, is new in the West, and many salespeople say they have trouble selling the idea.

“We have a lot of inventory,” says Paul Buss, an associate broker with Oregon Realty Co. in suburban Clackamas. “But let’s not mistake inventory for selection. There are certain kinds of homes people want that we just can’t offer them--namely, new homes on lots of an acre or more within commuting distance of the city.”

Transfers from out of state, in particular, sometimes “get sticker shock when they see our tiny lots and price ratio,” says Jan Cullivan, a salesperson with Coldwell Banker Barbara Sue Seal Properties in Portland. “Sometimes they give up and choose not to take the transfer. Most settle for what we have, but many have to increase their price range expectations.”

In such an environment, relationships with builders are key. The problem is that smaller builders--the mainstay of the REALTOR® community--are gradually being edged out of the market by high land costs and replaced by deep-pocket national companies such as Centex and U.S. Home, which “typically come to town with their own in-house salespeople,” says Leeding.

This is not to suggest that REALTORS® aren’t making money in Portland. They are. But the strong economy of the past few years has, to some degree, glossed over what some say are fundamental problems with the urban growth boundary.

The main one, say salespeople, is that Metro, the government entity that administers the urban growth boundary, has been slow to bring in new land. “We’re supposed to have a 20-year supply of developable land, but we don’t have it,” says Baker. The issue is a political football in Portland, with builders and REALTORS® often squaring off against environmentalists and other antigrowth activists, and is nowhere near being resolved.

The Portland Metropolitan Association of REALTORS® has no formal position on sprawl but at times has sided with different groups that have legally challenged certain aspects of the way the boundary is administered.

“Everyone wants Portland and Oregon to retain their rural feel,” says Crutcher. “There’s no disagreement about that. But the urban growth boundary has become an iron curtain rather than a growth tool.”

Robert Sharoff is an architectural writer for The New York Times, Washington Post, Chicago Tribune, and Chicago Magazine. With photographer William Zbaren, he has produced books highlighting the architecture of Detroit and St. Louis. He is a former senior editor with REALTOR® Magazine.

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