By Jennifer Shuch and Greg Frick
HFO
Investment Real Estate
This
is the full text of an article by Jennifer Shuch, HFO Research Analyst,
and Greg Frick, Partner. A shortened version of the article appeared in
the Oregonian February 2, 2017. You can read the Oregonian article here.
The City of
Portland and the State of Oregon have a lot to be proud of. Once again, Oregon
is at the top of the list of places people are moving to. A recent Fast Company
report ranked Portland a top city for job seekers. Innovative environmental
policies have garnered Portland international attention. On the flip side, many
Oregonians are still being left behind. A 2016 article in The Atlantic brought national attention to Oregon’s history of
racial segregation, an issue that continues to be ignored by state and local
politicians. Housing prices in cities across the state are rising at
unprecedented rates, far outpacing wage gains, particularly for minorities and
single-parent households. Rates of child hunger are incredibly high, while high
school graduation rates continue to be low. On the city level, Portland is at a
crossroads: if thoughtful solutions are found for these problems, it will
continue its road to prominence on the national and international stage. If
not, Portland will be a study in municipal failure.
It is
crucial that local and state politicians hoping to make change do the due
diligence required to ensure we are not setting ourselves up for failure. Without
thorough risk analysis, policies that sound like a panacea may end up doing
more harm than good. In November, ballot measures from the state and local
governments had lofty goals, but were lacking in practical details. For
example, Measure 97 sought to provide much needed funding for schools by
raising Oregon’s comparatively low corporate tax rate. Ultimately, it failed
because it relied on an untried, untested measure of collecting corporate taxes
that raised many questions about how it would impact voters and businesses. There
was no reason for this – Oregon schools were failed by politicians who wanted
to try something new, rather than perform a formal analysis of successful
measures from other states.
If Oregon is
50th in the nation for corporate tax rates, we have 49 case studies
in front of us to learn from. Leaders have an obligation to dig into the
available data and do a detailed cost-benefit analysis. In performing due
diligence, lawmakers should be asking which states continue to attract
businesses, despite higher tax rates for corporations. What is the system in
Texas? Massachusetts? Washington? California? North Carolina? Instead, Oregon
lawmakers came up with a new, untried solution that few advocates could
competently explain. Meanwhile, businesses of all sizes feared the uncertainty,
especially when at the 11th hour lawmakers began to suggest they
would fix the measure’s problems after it passed.
The State of
Oregon is now considering overturning the ban on rent control, while Tenants
United and other groups in Portland are lobbying the city council to enact a
rent freeze prior to the ban being lifted. There is no denying that the concept
of rent control sounds great. No more rent increases! How could that possibly
be a bad thing? But the fact of the matter is, it has been tried in a number of
cities all over the world, and it has never proven to be successful policy.
Rent control was attempted in Boston, only to be repealed in the late 1990s.
More recently an extremely nuanced version was attempted in Berlin, and studies
have found it benefited the upper middle-class renters more than any other
group. In San Francisco and New York, rent control has contributed to
skyrocketing rents. London is currently blaming austerity and demand-side
market manipulation for its own affordability crisis.
Rent control
is frequently described as the only topic on which all economists can agree.
Renters in Oregon are struggling – there is no denying it. But it is the
responsibility of lawmakers to find the best solutions to this problem, not
just the solution that plays the best with a progressive audience. We need a solution that will be most
beneficial not only for renters today, but renters in the future. Enacting bad
policies now because they sound good to frustrated voters is not an option.
Voters depend on lawmakers to do thorough cost-benefit analyses, to research
the best possible policies, not to put forth a band aid solution.
It is also
concerning that members of the Portland City Council do not always seem to be
aware of the full extent of what they are voting to approve. In the 2035
comprehensive plan, a stated goal was to increase housing density in transit
corridors. Meanwhile, part of Northwest Portland, arguably one of the most
walkable and transit-oriented parts of the city, was downzoned on the
recommendation of neighborhood groups. Is Portland demonstrating that it is truly
committed to increasing the supply of housing and advocating a multi-modal
transportation system if it so easily overlooks an issue like this? Should neighborhood
groups’ concerns about potential new neighbors outweigh the recommendations of
urban planners and housing advocates?
Many Oregon voters do not have a great deal of confidence in state or local politicians. The turnover rate for mayors and city council members in Portland is a good indicator of this. Arguably, this stems from decades of questionable policies enacted without thorough cost-benefit analysis performed at the outset. Politicians have a responsibility to voters to be able to explain how data-based analyses, recommendations from experts, and specific case studies convinced them that the policy before them is the best possible one for the voters they serve. While there is a lot of disagreement among urban planners on issues like inclusionary zoning, housing vouchers, and transportation systems, it is the job of elected officials to make every effort to find the best solutions for the problems faced by constituents. They do not need to get it right every time, but they do need to demonstrate to voters that they are not simply enacting the easiest, fastest, or most progressive-sounding policies. The future of the state depends on it.
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