Why Housing Prices are High in Maine
A study coauthored by Associate Professor Jim Siodla identifies minimum lot-size restrictions as one major reason
When Jim Siodla moved to Maine from California 12 years ago to take a job at Colby, the relative affordability of housing in the Pine Tree State meant that he and his wife were able to purchase a home not far from the College.
But with a current median home price in Maine that’s approaching $400,000, affordability is a thing of the past—something that strikes the associate professor of economics as a loss for both individuals and the state of Maine as a whole. He is interested in identifying possible solutions that could ease the Maine housing crisis, and he recently coauthored a pioneering report that found that common zoning policies in Maine municipalities are driving up home prices by thousands of dollars.
The report, “Under Construction,” was written with the Maine Policy Institute, a conservative-leaning think tank based in Portland. When it was published in early March, it made waves and generated headlines across the state, as Mainers reacted to such findings that a typical buyer would save $16,000 if a community reduced minimum lot sizes by 10,000 square feet, or less than a quarter of an acre.
“In economics, we try to approach questions objectively, provide the facts, and then debate the implications, conclusions, and significance of our findings,” Siodla said. “One reason I took this on is because I do believe in it as a bipartisan issue. I do think that housing has become way too unaffordable. Housing price growth is outpacing income growth, and we should understand why.”
The long-lasting effects of the San Francisco fire
Understanding the reasons why things are the way they are has been a guiding star for the economist for many years. Siodla, whose research areas include economic history and urban economics, also has a longstanding interest in housing that began when he did real estate appraisals for a California county tax assessor’s office before he started graduate school.
He held this position for several years during what turned out to be a period of historic significance: the run-up to the 2008 housing market crash, financial crisis, and subsequent global recession. Those events began with risky mortgage lending and a housing bubble.
“Housing has implications for all sorts of things in the economy,” Siodla said. “I’ve always had an interest in housing, which led me to study cities and urban environments.”
As part of his dissertation, Siodla focused on a different period that is no less significant—the 1906 San Francisco Fire and how it impacted the city in both the short and long term. In economics, a cataclysmic event like the fire is called a “natural experiment,” he said, which he used to better understand development frictions.
“I was essentially comparing the burned areas that were completely wiped out by the fire to neighboring, unburned areas to see how they’ve changed over time relative to each other,” he said.
Siodla was most interested in how the fire affected the urban economy and residential density, and he learned that residential density increased significantly in the burned areas.
“They redeveloped and built denser buildings and denser housing and used that land much more intensively, which makes sense because there was a lot of demand pressure in the city at the time,” he said. “That persists even to today.”
The burned areas also played a role in city zoning, which was introduced in San Francisco in 1921. If you compare the fire boundary to the original zoning code, it’s possible to see how dense development was allowed in the areas that were burned, but less so in the other areas. This pattern has remained the same in the century since zoning began there.
“It’s almost as if they mapped right onto the city as it existed, and that perpetuates right through time,” Siodla said. “It’s very difficult to change zoning codes. It’s a political process, and so it just sort of calcified the city in that sense.”
A closer look at Maine
It was a natural extension of his academic and personal interests to take a closer look at housing and zoning in Maine. For the housing report, the economist used data collected from towns and cities across the state and then analyzed the data, including conducting a regression analysis, a way of mathematically sorting out which variables make a difference to an outcome.
Among the numbers crunched by Siodla and coauthor Harris Van Pate of the Maine Policy Institute were those dealing with minimum lot-size restrictions. They found that municipalities across the state vary widely on those restrictions, which ranged from 10,000 square feet to almost 90,000 square feet, or roughly two acres.
“One reason I took this on is because I do believe in it as a bipartisan issue. I do think that housing has become way too unaffordable. Housing price growth is outpacing income growth, and we should understand why.”
Jim Siodla, Associate Professor of Economics
Some of their findings might seem like common sense, Siodla said. But using economic tools to prove a common-sense hypothesis can be clarifying, especially regarding housing, an issue that can be emotionally charged and rich in anecdotes but not always statistics.
“The basic idea is that the bigger your lot-size restriction, the less housing you’re able to build in any given area. That’s something that tends to restrict supply. And basic economics suggests that when supply is restricted, prices could go up as a result,” Siodla said. “This was sort of a first pass to see what things look like. Are we seeing what we see across the country where there’s a lot of previous research suggesting that where these kinds of supply restrictions exist, regulations tend to increase housing prices? The question we had was where does Maine fit in.”
Maine, they found, was right in line with the rest of the country in terms of how land use policies affect the cost of housing.
A complex housing landscape
The economists also compared towns in Maine that have land use zoning with those that don’t, in another effort to determine the influence of zoning on housing prices. They found that towns with zoning have roughly 7-percent higher housing prices than towns without zoning, a price difference that can’t be entirely accounted for through other factors, including location and housing demand.
The report doesn’t recommend eliminating zoning policies entirely, but rather asks the state to make the development process more streamlined. Among its key findings are that local governments are best positioned to address housing issues, and that cities with pro-housing policies such as reduced zoning regulations and increased transparency in regulations have increased housing supply and stabilized or reduced housing costs.
It’s a complex issue, Siodla said, with no easy answers. But he believes that gathering information and using economic tools to find patterns is an important step in understanding the housing problem and, hopefully, finding solutions.
“I’m not anti-regulation. I believe certain regulations are incredibly important, but I think what our study shows is that we should think more about what we have on the books and whether it’s really necessary,” he said.
After all, just about everyone in the state agrees that Maine is in the throes of a housing crisis, though they may differ on how to solve it. MaineHousing, a state agency that helps low- and moderate-income families afford housing, has done studies that show the state needs to build 80,000 new housing units by 2030 to meet demand. But zoning restrictions and other regulations can affect whether developers decide to build housing in any given community.
“I took on this project because I want to understand why, and I want to know what we can do to make a difference,” Siodla said, adding that the housing crisis is likely to have a long-lasting effect on the state’s economy and population sustainability. “I think of Maine having an opportunity right now to potentially welcome people, and housing is an important part of that.”
