The Core Issue: What’s Really Driving up the Cost of Housing


This is the second of a series of articles about Seattle-area housing shortages and prices. The first one, on middle-housing, is here.

Bellevue’s Lake Hills neighborhood is a classic post-war suburb. It was built out rapidly in the mid-1950s, as the Seattle area emerged from a severe post-war slump, and thousands of homes went up in just a few years. These are modest homes—1,200 square foot ramblers, 1,700 square foot split levels—aimed at the expanding Boeing workforce. With the bridge across Lake Washington, the Bellevue area had become the most accessible part of the region with substantial development potential.

By the mid-1980s, these homes were assessed at around $65,000, at a time when the median household income in the county was about $25,000. Today, when median household income in the county is about $110,000, the unimproved versions of these homes are assessed at over $1 million. In other words, the values went from about 2.5 times incomes to 9 times median incomes, even as the homes themselves deteriorated. 

Why is a tired, small, outdated house in a pleasant but ordinary neighborhood valued at $1 million? It’s the land values, of course. The Assessor’s office makes this pretty easy to see. For one of these original-condition ramblers in Lake Hills, the house itself is assessed at just $100,000 but the land is assessed at $900,000. And, sure enough, when these are sold today, they are typically torn down and replaced with a home that will sell for between $2 million and $3 million.

That same rambler, in the Dallas suburb of Plano–a Bellevue-like city–might sell for $350,000.  

It’s all about entitled land

To understand the high prices of single family homes in our region we need to break the package out into the two pieces: land and improvements. For this discussion we can dismiss the improvements piece  pretty quickly. Over time, buildings tend to stay flat or lose value (hence all those articles about how you will never get your money back out of an elaborate interior remodel). Styles and floor plans change, and structures deteriorate with normal wear and tear. Meanwhile, hard construction costs—materials and labor—don’t vary much over time, or across the country. The structures are simply not the issue, driving prices up.

On the other hand, land is the big factor. In an expensive market, what counts is the value of the parcel underneath the house. But it must be emphasized that the real value is not the dirt itself, but the entitlement that comes along with the dirt, namely the permission by a local government to have a house on that lot and to connect to local utilities. Land without an entitlement only has value for the next best use (agriculture?) which, in an urban area, is pretty close to zero.

Moreover, the size of the entitled lot does not matter a great deal, as long as the setbacks and other features of the zoning code allow an appropriately sized building envelope. A 5,000 square foot lot just inside the urban growth boundary (UGB) will have a similar value to a five-acre lot just outside the UGB, where the zoning requires a five-acre minimum. Within a subdivision, curving streets and cul de sacs will yield varying lot sizes, and this also has minimal impact on total home values.

Here’s another way to think about lot sizes. Imagine your backyard neighbor has an oversized lot and offers to sell you part of their back yard and move the fence closer to their house. How much would you pay for that land? Unless you are trying to put in a sport court or a swimming pool or another house, you probably would not pay much, if you entertained the idea at all. 

The other thing to understand about the value of these “entitled lots” is that in a given market area, all lots that do not have some special amenity (views, golf course) or disamenity (adjacent to a wrecking yard) have roughly the same value. Similarly-situated lots will have similar values whether they are under a brand new home, a nice older home, a tear-down, or are vacant. 

The value of the entitled lot is the starting point for understanding the value of a home, and that will vary by place, of course. Put that Lake Hills rambler in Kent, and the structure will still be worth $100,000, but the lot under it will be worth maybe $400,000. In Yelm the lot might be worth $250,000. Home prices then climb from the lot price based on the usual factors of home size, condition, age, school districts, etc.

Why entitled land is so expensive

The price of an entitled lot in a given market area is mostly a simple question of supply and demand for houses.

An entitled building lot without any significant amenities or disamenities is a commodity, and basic economic theory tells us that the value of a commodity is tied to the marginal cost of producing a new unit of that commodity. So, lot prices will reflect the cost of land plus the cost of going through the permitting process to get that land carved into legal, entitled lots with utility access. 

Both of these factors, land and permitting, drive up the cost of developing new lots, and that is reflected in the prices paid for all lots that are included in home purchases. In other words, as the cost of developing new lots on the edge of Sammamish goes up, the price of existing homes in Sammamish goes up as well.

Here’s the main reason our housing prices are so high. The price of new lots drives the prices of new homes. The old rule of thumb still holds, especially where bank financing is involved: the sales price target for a new home should be at least three times the cost of the finished building lot (the entitled lot plus infrastructure). The “highest and best use” of a new building lot is a home that is higher quality than anything comparable in the existing used home market in the area. 

New construction builders never want to compete directly with the used home market, so they will always build the most expensive home in an area. So, if the lot ends up costing $1 million, a builder will not likely get bank financing to build anything that will be priced at less than $3 million.

What to do about it

If entitled lots are a commodity, then the obvious way to lower their price is to lower the cost of bringing new lots onto the market. That means lowering the cost of raw land and lowering the cost of turning that land into individual entitled lots.

Urban Growth Boundaries (UGBs) have scarcely moved in King County since they were first drawn in the 1990s, so the supply of land that can be subdivided into normal building lots has been steadily shrinking. Much of that land is controlled by large development and home building companies who are banking it for future use and will never put it on the market for other developers to work with. Other land has fallen into the hands of speculative investors who are watching their land holdings increase in value as land prices rise. High demand and short supply drive up prices.

One way we will lower the value of entitled lots, and thereby lower the cost of single family homes, will be to add new land by moving outward the UGBs. The UGBs were never intended to be frozen in time as they have become. They were meant as a tool to ensure contiguous growth and to avoid leap-frog development, which is an inefficient use of infrastructure. It is time to honor the original intent of the GMA and expand the UGBs to accommodate the housing we need for families of all income levels.

If you think this means promoting the dreaded “sprawl,” a few things to keep in mind. First, sprawl depends on where you stand, and most current thinking is based on standing at the corner of Fourth and James Street, home of Seattle’s City Hall. But with hundreds of thousands of jobs far from Downtown Seattle, it does not make sense to keep thinking of the evolution of the region in those terms. Second, most areas outside the UGB are settled and hardly pristine, with pre-GMA subdivisions and individual lots, five-acre mini-estates and oddball commercial uses. Third, if we can afford $70 billion for a light rail system, we should be able to build roads and transit to much-needed new residential communities.

The UGB has become a sacred cow and (to mix metaphors) a political third rail. But so was single-family zoning, and look at what’s happening to upzoning single-family neighborhoods in state capitals around the country.

Michael Luis
Michael Luis
Michael Luis is a public policy consultant who has been wrestling with housing, growth and economic development issues around Washington State for over 30 years. He is author of several books on local history and served as mayor of Medina.


  1. Excellent article, Sir! Thank-you. The lack of common sense and intelligence in our political sphere is frustrating. Up-zoning “close-in” single-family neighborhoods is not the answer. I suppose, theoretically, it might help a little bit, but we are usually blind to the downside that these half-baked policies often create. We have a nice neighborhood. We worked hard and paid a premium to live here. Would you now want a 4-plex or 6-plex next door? Is that going to solve our “housing problem” or create enough “affordable” housing? Fix the roof instead of continually mopping-up the water on the floor.

  2. “Much of that land is controlled by large development and home building companies who are banking it for future use and will never put it on the market for other developers to work with. Other land has fallen into the hands of speculative investors who are watching their land holdings increase in value as land prices rise.”

    I’m so glad you bring this up, recognizing this key part of the problem, a factor that has a lot to do with high housing prices not only all over the country, but in Europe and elsewhere.

    And so baffled by your proposed solution. Because the finance and real estate sector loves to grab up undeveloped peripheral land for speculation, let’s provide them with more?

    What we need is to change the financial picture on these properties in such a way that the current owners find them more of a liability than an asset, and hopefully recover some of this land for people to live on.

  3. Where is the map?

    Impossible to really comment and discuss your article without seeing exactly what you’re proposing.

  4. Nope. As you state, large development corps bought up private land banks to sit on. Opening up more climate killing sprawl will simply give them more to bank.

    Smarter take. Pass a graduated fallow tax, where land inside the UGB that is NOT used has a geometric growth in taxation over time, similar to a derelict property tax. These companies banking land will now have an economic incentive to develop or sell.

    Combine this with a regional effort to incentivize losing large surface parking lots, and you will instantly free up a LOT of land for devlopment without incentivizing more land banking and sprawl.

  5. “Move the urban growth boundary” is far too vague and tells us nothing about what you mean. Who decides — and on what basis will they decide how much to expand and where?

    Your comment “Third, if we can afford $70 billion for a light rail system, we should be able to build roads and transit to much-needed new residential communities.” ? We cannot even “afford” to maintain basic bridges and roads in our existing cities. Why assume such wealth of reserves when it is clear we don’t have it? Every one of these initiatives to raise funds for infrastructure raises property taxes and pushes another person out of their property.

    For this series to become meaningful I look forward to your responses to the suggestions here to counteract landbanking and speculation.

  6. Mike, I’ve long thought something like the inverse of Henry George’s land tax would be very helpful (though it would not necessarily solve the problem you’re writing about here).
    So this: tax only improvements, not land at all (except minimally for government utility capital costs). This would prevent “highest and best use” taxation from driving limited income owners out of upzones such has happens in some of the recently enacted Mandatory Housing Affordability (MHA) portions of urban villages.
    Granted, this idea has been partially used in policies allowing property tax deferrals for seniors and certain low-income property owners, with the tax value recaptured at sale.

  7. Have you looked into the status of school impact fees? I wonder if the new declines in enrollments are changing the basis for charging these. They always had the flaw of basically charging people with kids more for the public schools that benefit all of us. Even though many of the new homes did not have new kids.

  8. “… and look what’s happened to upzoning single-family neighborhoods …”

    RIght, there’s no money in pushing that one any more, since
    1. everyone in the state legislature has already got on board, and
    2. where it has already been done, the results have unspectacular anyway. Is Portland riding high on abundant housing? Hardly, they’re worse off than Seattle – and hearing suggestions for more upzones, since poor outcomes have never dimmed the luster of industry deregulation.

    So we must march on to the next deregulatory frontier!

  9. Ah, I doubt anything written in this article is true… it’s basically some dude wanting to build more houses for profit for himself and clients he represents. Moving the UGB only allows more multi-million dollar homes. It doesn’t absolutely nothing for affordability. Everything in this article is easily proven false with a single word… California.

    Seattle was invaded by an invasive species…. Liberal Yuppies. This species brings in tons of money and high paying job creation (tech jobs) and pushes out all other residents of modest income out. Who can spend 1 million for a rambler? Rich Yuppies can! And it doesn’t matter about how many units are built, or the UGB or zoning…. because Yuppies are an invasive species, like ivy or blackberry brambles… the more room you give them, the more they grow.

    So the Mayor or Medina sees Greater Seattle growing into L.A. North? That will bring a lot more traffic…. but lower home prices? I’m afraid not.

  10. Thanks for all the comments.

    First, the imposition of UGBs constituted a massive intervention in a complex market, and it should be no surprise that it has created large distortions. Quite clearly, when the county drew the original (and still mostly intact) UGB it gave little consideration to the problem of land speculation. Land speculation has been around since the beginning of time (it’s a big part of the story of the West Coast), and to ignore the possibility that investors would take advantage of the combination of outstanding economic growth prospects and a legally limited supply of land is astonishing. And the longer the UGB remained unchanged, the better those investments have looked.

    Land speculation in this environment is form of rent-seeking that has been enabled by public policy. It is rational behavior and no more evil than any other form of investment. The way you get rid of rent-seeking is to get rid of the public policy that generates it.

    Unraveling the mess we have with regional land markets will not be easy or painless. Will moving the UGB lead to more speculation? Probably, but it will also lead to construction of more homes. If we don’t start moving it we will be denying homes to families who just want what generations before them have had–a home of their own. I suspect that most, if not all, of the commenters here do, in fact, own a home or have owned one at some point in their lives. We need to think about future generations and their ability to enjoy what we older generation folks have taken for granted. I have looked long and hard and have found no evidence that families with children want to live in apartments, and yet that seems to be what our policies are aiming at.

    As far as the taxing ideas mentioned, responding to one problematic intervention with another intervention does not seem to be the wisest thing to do. Trying to counteract one market manipulation with another manipulation will just lead to more weirdness. 50 years ago land was plentiful and homes were inexpensive. Let’s try to return to that.

    As far as where to move the UGA, that is not my job and not your job. It is the responsibility of planning departments to make recommendations after suitable research and public input, and for elected officials to vote on those recommendations. If there is an open public process during which I can offer thoughts, I will do so, and I imagine you will too.

    Next up: multi-family.

    • OK, Michael….no map…. so what do you think should be the criteria for moving the UGB? You’ve obviously thought about this issue. You must have ideas on how to move the IGB.

      • Look where the UGB zigs and zags to create pockets of off-limits land. Look around Woodinville, Maple Valley, Covington. And as you look at the parcels in those areas, there are five and ten acre parcels with existing older homes that could easily be subdivided. And some of those McMansion owners will be willing to carve off a bit if there is some money in it. Plenty of land out there that is near highways and away from sensitive areas. Plus, these areas already have lots of pre-GMA subdivisions that were grandfathered in.

    • So basically, ideology. You feel the solution is to pave over wilderness and farmland as we cook the planet, because market intervention is bad, bad, bad. You stipulatre that much of the paved wilderness andf farms will just get banked, but some will be used so there! This is a serious position?

    • Lake Hills is a delightful area that has matured gracefully. But having grown up on the Eastside, it pains me to see a neighborhood designed for regular folks become the province of the wealthy.

  11. Now the bottom line becomes visible – the problem is not that the boundaries are not right, it’s that they exist at all. A well meaning attempt to preserve some open space in less profitable uses, it delivers the market into the hands of speculators.

    So what will we do after we enlarge the boundaries and the newly available land is gobbled up by speculators? We’ll just enlarge them more, because really any constraint to development is an insidious intervention in the market, and to have goals that aren’t served by the market – like open space and relatively unprofitable agriculture – is just asking for trouble. And perish the thought that we would try to deal with it by further interventions in the market, particularly any tax schemes that would undermine speculative profit.

    I hope in a decade or two we will look back on stuff like this, the way we look back today at the Property Rights advocacy of 30 years ago. (If you don’t remember looking back at that, search for “wise use”.)

  12. The premise of Mr. Luis’ piece is not backed up by documented facts. My copy of the Oxford English dictionary applies in his case : “Anecdotal – Narrative of detached incident; unpublished details of history.” His view seems shaped by his goal.

    My “anecdotal” rebuttal is the re-valuation last fall of structures vs. land on my little cottage in Skagit County – a totally different story.

    We bought our place in 1967 – and yes, we did install a “modern” septic system there in the 1980s, but its most recent valuation contradicts Mr. Luis’s presumption. Our property increased in its 2022 assessed value last fall by $85,000 for “structures” (no additions, subtractions or whatever to our dear old “structures” after a one-room addition 40 years ago – and still includes a working outhouse behind our little “barn”). But that 2022 re-evaluation only increased $36,800 for the value of the “land.” This trend is not new. This has been the continuing trend for my property in the last half-century .

    Even un-remodeled structures increase in value faster than even scenic property where I’ve lived, both in Seattle and Skagit County.

    Come on, folks! This is a complex issue with serious environmental as well as economic issues at stake with “growth management” – including energy and seismic protections for the poor, protection from cheesy housing developers who push for little oversight that could impact structural integrity, despite increasingly violent weather brought about by climate change, and the underlying causes of housing “affordability” – low wages and hostility to collective bargaining.

    Consider that Seattle ALONE saw a 21+% population increase in the 2010-20 decade. Spillover of such growth in the Salish Sea region has had real impacts. Seattle’s Water Dept. continues to supply suburban jurisdictions and the city ceded its transit management to King County in the 1970s. The Regional Transit Authority – that special government funder of “Sound Transit” in which Seattle has minority representation – currently seems mired in delays.

    Mr. Luis needs to take his eye off “zoning” and “developers” and start serious comprehensive urban planning research from the “dirt” up.

  13. How does Seattle’s geography factor in housing supply? It’s a hilly area surrounded by huge bodies of water and mountains, so there’s nowhere near the amount of space to grow, like the comparatively flat and arid Dallas/Ft. Worth area. (San Francisco proper has a similar issue.) Unless we fill up Lake Washington with dirt and build houses on that, I’m not imaginative enough to see how to make use of Seattle’s limited real estate than row housing or building vertically.

    • Quick lesson in Seattle vs. San Francisco geography : SF- 46.9 square miles, 2nd most densely populated in U.S. – after NYC.

      Seattle 142.07 square miles.

      Take a hike/bike/drive/bus north of the Ship Canal (if you know what that is) and then South to Beacon Hill, Rainier Valley and over to West Seattle. Then cross the north and south city limits and check the ‘burbs that don’t involve crossing a lake.

      • I’ve lived here for 45 years, so I know the geographic layout, Ms. Spaeth. There’s just not a lot of land for Seattle/Pugetropolis to grow other than pushing into exurban and rural areas. Metro Seattle is as hemmed in as San Francisco, Vancouver and other areas surrounded by hills and water, and can’t expand outward like Dallas, Chicago and Phoenix. That lack of land means high real estate prices, unless you increase density.

  14. On a semantic note, most readers will, or should anyway, recognize proposals like this as industry deregulation that has been a long time pillar of conservative politics, but in the English language sense of the term, conservative it is not.

    The Urban Growth Boundaries exist to protect land from irreversible change. It implicitly recognizes that The Market is not adequate to shape the pattern of human settlement. Financial gain – inevitably short term – doesn’t come anywhere near to capturing a society’s interest in its most fundamental asset, the land.

    When land has been excavated, graded and paved for development, it’s permanently lost to its prior use as wildlife habitat or agriculture. To make that kind of sacrifice, for the sake of today’s economic gain at the expense of future generations, is not a conservative act.


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Comments Policy

Please be respectful. No personal attacks. Your comment should add something to the topic discussion or it will not be published. All comments are reviewed before being published. Comments are the opinions of their contributors and not those of Post alley or its editors.