In collaboration with Zach Pagel and Catherine Kurtz
Urban growth boundaries (UGBs) are government-imposed restrictions aimed at combatting excessive urban sprawl, or development and growth that pose a threat to rural and agricultural land. These boundaries are meant to incentivize development within certain parameters, which create denser urban areas. Understanding how UGBs affect the development of cities can provide use with insight on how government-imposed regulations can spur economic growth and prosperity. Effectively managing the growth of cities is an essential tool that urban planners use to ensure specific goals are being met within a city, and is a key concept in understanding how cities are formed and how it function.
When planning the expansion or creation of a city, urban planners may run into difficulty when attempting to target development to one specific area while hoping that price volatility does not impact that potential development. The demands of the market are constantly changing and to use them to the advantage of an ultimate urban plan requires very strategic planning. For example, the real estate market is currently growing very quickly in Dallas, Texas. How can city planners ensure that developers are not scared off by the uncertainty of future prices, and in addition, concentrate their developments in the city of Dallas, rather than expanding to outside the city borders? How can they ensure that development will keep up with demand and urbanization can grow? Christopher R. Cunningham examines these questions in Growth Controls, Real Options, and Land Development, using the State of Washington to show how the implementation of an UGB and Growth Management Acts (GMAs) can actually help predict demand, development, and prices in both urban and rural settings.
Cunningham (2007) researches the effects of the implementation of the UGB and the GMA around Seattle, Washington in Kings County to determine what kind of effects density restrictions have on development inside and outside of the boundary. An UGB is defined as a boundary imposed to control urban sprawl by concentrating high-density growth within the boundary and low-density growth outside of the boundary. The GMA mandated that certain areas of Washington great UGBs to separate high- and low-density development. Cunningham’s paper attempts to elaborate on the subjects of growth management and real options in a manner that no other paper or research has done before. He accomplishes this by initially revealing the direct effects that the boundary has on development. Next, he explores repercussions of density restrictions and their impact, as a variable, on option value. Finally, Cunningham strives to uncover any connections between government regulations and real options in investment decisions.
Cunningham put in great effort to get an extensive set of data such to ensure that his findings are meaningful and well-supported. One of three primary sources for the data used in this paper came from records on parcels and building descriptions kept by the county assessor’s office for the year 2002. Information on parcels kept in these files contain 70 indicator variables for possible features that commonly affect property values in that area. Building descriptions are just as detailed, with 30 different variables being laid out that may impact a building’s value. For his second source, Cunningham explored real property transaction files from the county assessor’s office. He did this to estimate house price uncertainty and forecast future prices over the coming year. Finally, he used county GIS files of parcel location, zoning, and jurisdictional boundaries.
He began his analysis of the data by attempting to define the effects of the growth boundary and price uncertainty on the timing of development. This was done through taking all homes completed during and after 1985 to find that by 2002, of the 163,120 parcels that could have been developed on, 95,805 had been developed on while 67,135 remained undeveloped. Next, by looking at sales from the King County real property file, Cunningham sought to measure quality-adjusted housing prices to ultimately get an idea about forecasting prices and price uncertainty in that area. After finding the total sales, dividing the county by school districts, running 1,230 separate house price regressions, estimating price uncertainty, and taking the annual average of price uncertainty term, Cunningham was ultimately able to create a mean level of price uncertainty per year per school district in the county. In total, Cunningham used a data set of over 500,000 home sales and 163,000 potential pieces of land that could be developed between 1984 and 2001.
Cunningham uses these three resources to create his own set of data that models the construction and its timing inside and outside of the UGB before and after the creation of the boundary. He additionally explores how much time passes before a piece of land is developed after the boundary is put into place. Furthermore, he looks into development site quality, changes in housing demand relative to time, and price uncertainty and future price expectations in relation to time. Using his extensive data sets, he is able to have well-supported and reliable conclusions relative to Kings County.
Cunningham’s extensive research leads to credible final results from his research. He ultimately finds that in typical market situations, uncertainty leads to slower development in a particular market. However, in the presence of a GMA where higher density and urban-oriented development is encouraged, uncertainty becomes less relevant in the development process. With the GMA, comes the removal of legal development rights as long as the removal of options for landowners. When landowners do not have as many options, there is not as much uncertainty when it comes to future land development, which leads to less volatility in the market place.
Furthermore, Cunningham provides compelling evidence that the implementation of the UGB decreased development outside of the boundary in rural areas and increased development within the boundary in urban areas. The UGB then ultimately helped the GMA to achieve what it had originally been implemented to achieve.
Cunningham additionally found that after the law had been in effect, lot sizes within the boundary shrank and became denser, whereas lot sizes outside of the boundary saw enormous growth. Not only were lot sizes changing across the boundary, but also lot prices were changing so dramatically that at one point, completely empty, undeveloped lots within the UGB had higher price tags than those lots outside of the boundary that were developed.
To conclude his argument, Cunningham (2007) reasserts the fact that the Seattle area’s enactment of an UGB reduced development in designated rural areas and increased construction in urban areas. Furthermore, he stresses the point that the GMA successfully removed much of the future price uncertainty and real option considerations that were preventing landowners outside the boundary from pursuing development. By taking away these barriers, the UGB only reduced development outside the border by 28 to 39 percent, a considerable difference from the 42 to 48 percent reduction that would have been seen had uncertainty surrounding future price and future use remained.
Thus, this provides an important knowledge to urban planners and policy makers in pursuing their development goals moving forward. Through using tools such as UGBs, cities can concentrate housing development in the areas that they desire, while also removing the allure for landowners outside the boundary to brush off other forms of development in hopes that their parcels may one day attract high-paying residential and multifamily developers. In the long run, this allows cities to exert control over an otherwise-free market, forcing landowners to move more quickly in developing areas that may otherwise have sat dormant for decades longer.
In addition to Cunningham’s 2007 work, much other thought has been given to the idea of urban growth and the effect of government regulations such as UGBs. This includes a work by Anthony Downs (2004) of the Brookings Institution. In this book, Downs reiterates Cunningham’s findings surrounding the development patterns caused by UGBs. In addition, he examines many other ways that governments can affect development, including zoning restrictions, separation of utility districts, caps on building permits, and moratoriums on construction for certain property types. Across his discussion of these policies, he also pays special attention to their impact on housing affordability, which he finds can be quite large if the policies are too restrictive or not implemented correctly. As he admits near the introduction of the book, “most growth management, growth control, and even smart growth efforts have not paid a lot of attention to providing more affordable housing,” a fact that calls into question whether there is a way to address this issue while still keeping intact the many benefits that can come through policies such as UGBs.
The failure to address this question is among the several major weaknesses of Cunningham’s paper. Although he incorporates many variables into his regression model that look at the type of land being developed, there is very little discussion of the type of development actually taking place on these various parcels both within and outside of the UGB. For his research to be more useful to groups such as urban planners, policy makers, and real estate developers, it would have been beneficial to include tangible examples of development projects that took place, as well as information regarding their pricing and affordability. Without this information, it is very hard for any of these groups to incorporate Cunningham’s research into any sort of actionable plan.
Should Cunningham or other researchers revisit this paper as urban growth continues to rise across the United States, there are several useful actions one could take when conducting research. These include applying the research to more than just Seattle, as the findings may be drastically different in various cities. While Seattle has long been propelled by growth in the technology sector, many other cities have faced different levels of land and housing demand. In particular, an interesting example to examine would be Detroit, which saw unprecedented urban growth across the height of American auto manufacturing, and is now seeing moderate growth once again after the collapse of its dominant industry. In addition, Cunningham could also research some of the problems that come with concentrating housing growth within a particular boundary. These include items such as traffic congestion, demand for public transportation, and the increased need for educational and medical facilities. Through knowing the effect of such factors as these, governments would be much better equipped to growth policies that make the most sense for their particular communities.
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1. According to Christopher R. Cunningham (2007), what government interventions drove changes in development and prices in Kings County, Washington?
a. UGBs
b. Urban Sprawl
c. GMA
d. Both (a) and (c)
Explanation: Cunningham asserts that the UGB was the ultimate strategy that helped the GMA achieve what it was originally implemented to achieve. The GMA set goals, while the UGB met those goals. Therefore, both the UGB and the GMA drove changes in development and prices (amongst other changes) in Kings County, Washington. Urban sprawl is just the movement of humans away from central urban areas, so that would not make sense in the context of this article or this question.
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2. According to Cunningham (2007), what is the primary purpose of an UGB?
a. To concentrate low-density growth inside the boundary, and high-density growth outside the boundary
b. To concentrate high-density growth inside the boundary, and low-density growth outside the boundary
c. To create low-density growth both inside and outside the boundary
d. To concentrate both high- and low-density growth within the boundary, and stop all growth outside the boundary
Explanation: Cunningham first explains that UGBs are primarily created to restrict where high-density growth takes place. This eliminates choice (c), which does not mention high-density growth at all. Later on, Cunningham also states that UGBs are not meant to stop all development outside the boundary, thus eliminating choice (d). This leaves the choices of which type of growth is to take place both within and outside of the boundary. As discussed throughout the paper, the purpose of the UGB is to concentrate high-density growth within the boundary, making choice (b) the correct answer.
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3. According to Cunningham (2007), what is a major reason that landowners sometimes delay development on their land?
a. Price uncertainty
b. Uncertainty about best use
c. UGBs
d. Both (a) and (b)
e. (a), (b), and (c)
Explanation: A major portion of Cunningham’s work is devoted to discussing how both price uncertainty (a) and uncertainty about the best use (b) of a parcel can delay its development. Among his main findings is that UGBs help to eliminate these uncertainties, restricting the possible uses of land and therefore reducing its potential for the price appreciation that can cause owners to “wait out” the market before pursuing development. Thus, choice (c) and by proxy choice (e) are incorrect, making choice (d) the correct answer.
References
Cunningham, C. (2007), “Growth Controls, Real Options, and Land Development,” Review of Economics and Statistics 89, 343–358.
Downs, A. (2004), “Growth Management and Affordable Housing: Do They Conflict?” Brookings Institution Press: Washington, D.C.