Bert Caldwell: State housing boom is more than some people can afford

A new study says Washington homes cost too much.

Too much because price appreciation has outstripped income growth, and too much because growth management has constrained the supply of lots available for new home construction.

Adjusted for inflation, says the Washington Research Council, the cost of building a home has remained remarkably constant. In fact, between 2001 and 2006, construction costs per square foot declined slightly in seven of Washington’s larger cities. Spokane costs inched down from $82.22 per square foot to $81.25.

Yet, as anybody with a pulse and a mortgage knows, the median price for a home has soared over that same period. A home in Spokane County is worth 68 percent more today than it was in 2001. That surge is particularly impressive because the 1996 to 2001 increase was a mere 6 percent. Talk about acceleration. No other county in Washington experienced anything like it.

But if construction costs have remained constant, not so for land. Not only are they not making more of it, as the old investment saw goes, they are making even less that comes with what the Research Council study calls “permission to build.” Zoning or any number of other restrictions constrict the land that can be built upon. Scarce supply translates into higher prices. Homes get bigger and more expensive as builders make the most of what land they have.

The price of existing homes follows because buyers believe new construction will not undercut their investment.

Study co-author Kriss Sjoblomthe council’s vice president for research, says that confidence is well-founded if buyers live near a “supercity” that, thanks to quality of life, experiences in-migration no matter the economic cycle. Seattle, for example, avoided the real estate downturn that sapped prices in many high-flying markets during the 1990s.

The squeeze on land has become so tight in Bellevue that lot value may represent more than half the value of a home. Sjoblom does not expect the dynamic to change.

“I think we’re locked into it here for the long run,” he says.

Growth management was enacted to prevent sprawl, and keep the cost of extending roads and other infrastructure under control. Sjoblom says the law, subject to local interpretation, has worked.

A second study from the Washington Center for Real Estate Research illustrates just how important that local approach can be.

Author Glenn Crellin has followed real estate for 30 years, with a particular focus on affordability.

In 1995, the maximum price on an affordable home in King County was $194,700, based on a formula that includes home prices, household incomes and interest rates. About 4,100 sold at that price or less. That home cost as much as $312,400 in 2005. Only 1,700 remained available at that price or less, meaning only 41 percent of the homes considered affordable in 1995 remained so a decade later. The situation was worse for first-time buyers. Fewer than 4 percent of the homes considered affordable in 1995 were still within reach in 2005.

The situation is far better in Spokane County, where planners and county commissioners alike have approved lotsa lots. An affordable home in 1995 cost $141,100 or less. Almost 1,200 sold. In 2005, the price on an affordable home had moved up to $228,600. More than 1,100 remained available, almost 96 percent of the 1995 total. And even though the value of a first home had almost doubled to a maximum $127,200 during the decade, more than 93 percent of the 1995 homes remained available.

None of the major West Side urban counties matched that retention rate.

Crellin attributes Spokane County’s record to the continued availability of an adequate number of lots platted for development. New lots outnumbered single-family building permits in 2004, and almost as many lots were created in 2005.

Growth management remains controversial. In October, a task force recommended to Gov. Chris Gregoire several changes that would help assure an adequate supply of housing. Help with infrastructure costs, simplified regulations and better information about land capacity were among the suggested improvements.

Housing is expensive but, as Sjoblom notes, that works to the advantage of all those who have homes and have a vested interest in limiting new supply, and to those who want as much land as possible preserved. Rejection of Initiative 933, which would have voided much of the land planning done in the last decade, indicates there is a large constituency for husbanding what space we have left.

But the home ownership rate in Washington is among the lowest in the nation. Balancing housing against environment remains a challenge.