As I drove through Eugene with a Texas couple who were house shopping, the discussion of Oregon’s Urban Growth Boundaries (UGB) came up. The concept of a geographic band restricting growth around the city was foreign to them. I explained some of the advantages and disadvantages from my perspective of an “intentional growth” concept. My client responded that Oregon better have skilled economists forecasting supply and demand out twenty years, as the state is disrupting the economic ecosystem—and that has significant, long-term residual effects. This comment resonated with me.
The Economics of the Eugene Real Estate Market
Some of the residual effects of this disruption are revealing themselves in today’s real estate market. For example, during the month of February, the average sales price of homes in Eugene was $303,000, while the average home for sale was $474,000. The gap between what buyers can afford and the inventory we have available for them to buy is widening. During this time when we have more demand for homes than we have supply of homes, the challenge is amplified by additionally having the “wrong” inventory for those buyers.
As the dialogue continues about whether it is time for Eugene to expand the residential land supply growth boundary, local builders and residential land developers are working with the remaining available, buildable and residentially-zoned land within the UGB. Much of this land is challenged. In most cases, there is a valid reason for the land that has not been developed as city planners had intended.
For example, when land was abundant, over-sized lots were sold and undersized homes were built on them. Today, those privately held lots are fraught with challenges. Often, homes on these lots have the available land trapped behind the structure with no viable access. Eugene’s land use plan is restrictive on the development of a second unit on that land. Often, the best choice (from a land use perspective) is to take down the existing structure and rebuild. However, the current home has too much value to make this a viable option. Also, many of the remaining lots have not been developed because it is cost-prohibitive to build due to the topography. The engineering and excavation required to create a buildable site is expensive.
Land Sales in Oregon
As a result of today’s limited land supply, each lot becomes a significant investment. Builders must build a large home on the lot to warrant a price high enough to recover all the costs surrounding the creation of a shovel-ready lot. The end result is a new home inventory at $400,000+. The term “economic eco-system” recognizes that all types of housing are affected when one type is at risk. The lack of inventory of affordable homes for sale will negatively impact housing for lower wage tenants. Without this starter home inventory, would-be buyers will remain tenants. Therefore, the vacancy rates will remain excessively low, driving rent prices up. As we continue to discuss the challenges of affordable housing in Eugene, we must explore ways to create affordable, first-time buyer housing.
The checks and balances that the UGB provides is an opportunity for thoughtful growth. As stewards of the land, we can avoid urban sprawl and simultaneously respond to the needs of our citizens. It is time to take another look at Eugene’s UGB.