January 27, 2010

New study shows government policies inflate home prices in Washington

By New study shows government policies inflate home prices in Washington

Author: Daniel Himebaugh

The Washington Policy Center, a Seattle-based think tank, released a study this month showing how tax policy and growth restrictions increase the cost of home construction in Washington.  The study finds that government policies add to the price of a typical single family home by as much as 28 percent, or $67,400, depending on location.

The added costs come in many different forms, including building fees, permitting fees, utility fees, impact fees, and the Growth Management Act, a state law that controls local planning decisions.  The GMA's planning goals are widely divergent and have made planning under the GMA onerous and expensive, according to the study.

An earlier University of Washington study tracking the economic impact of the GMA concluded that the GMA alone added up to $203,000 to home prices in high density areas, such as Seattle.  The American Planning Association challenged the UW study, but still concluded in its own study that the GMA contributed about 17 percent to the final price of a typical home in Washington.  The new WPC study corroborates both previous studies to some degree.  As the WPC study concludes, it is undisputed that land use regulations contribute significantly to the cost of construction.

Although the WPC study clearly demonstrates that land use regulations add to the cost of living in Washington, the study's authors note that the average citizen is probably not aware of these costs.  "Whether due to a lack of transparency, general apathy by the consumer, or because fees are usually paid upfront by a contractor and then hidden in the final home price, the end result is the same.  The homebuyer ends up paying more, and local officials end up collecting more money, whether the citizens recognize the reason or not."

Fortunately, more public data on this issue should be forthcoming.  According to the study, the state auditor is currently conducting a performance audit of permit fees in Washington, which should provide more insight on the actual effect that these fees have on the cost of construction.

The WPC study can be found online here.

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