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The Fatal Conceit

Stephan BurklinCascade Commentary

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Summary: Created nearly ten years ago, the Oregon Housing and Community Services Department’s “Vertical Housing Program” was designed to encourage mixed-use commercial/residential developments. But despite massive public subsidies invested in these projects, the program is not able to attract businesses to its retail spaces.

“The curious task of economics,” alleged the Austrian professor Friedrich Hayek, “is to teach men how little they know about that which they imagine they can design.”* Governments around the world agree; but if the Soviets themselves relented, why won’t Oregon admit its folly? Rejecting Hayek’s notion, state planning agencies from Portland to Medford have squandered hundreds of thousands of taxpayer dollars meddling in private industry. All the while, the economic truth is simple: trying to improve market efficiency with governmental directives is like trying to run your vegetable garden on double A batteries. It won’t work.

One such manifestation of a defective planning strategy is the Oregon Housing and Community Services Department’s “Vertical Housing Program.” Created nearly ten years ago, the program was designed to encourage mixed-use commercial/residential developments through a partial property tax exemption. Optimistic local and regional governments expected that a combination of low-income housing projects, multi-modal transportation solutions and enticing business tax abatements would trigger urban love-fests.

In contrast to such idealistic fantasies, however, the city of Milwaukie’s project, the “North Main Village,” stands sheepishly as an emblem of despair. In a heroic coordination effort, the city of Milwaukie took out loans to buy property and agreed to forgo property taxes. According to the Legislative Fiscal Office, the Oregon Housing and Community Services Department spent thousands of dollars to administer the program. Plus, Metro indulged Milwaukie with $450,000 in street renovations and $580,000 in transit-oriented development grant money to make sure that the project penciled out. Given these lavish investments, is the program paying dividends?
 
Commercially, the answer is a resounding “no”. The complex is architecturally intriguing, and the upper-level apartments are charming. But the 8,000 square feet of vacant retail space creates an unsightly juxtaposition, like an evening dress paired with muddy sneakers. Having burned through over one million dollars of taxpayer money, planners are now unable to get businesses to touch the project, generous tax exemptions notwithstanding. Why? Because businesses in the area recognize a lack of patrons, parking and profit. And the recession isn’t the culprit; the stores have been mostly vacant for years. Other Vertical Housing Program mixed-use projects in Central Point, Grants Pass, Medford and Eugene are in the same sinking boat.

From the residential standpoint, the project is equally lamentable. For although the apartments are fully occupied, the implausibility of commercial success is factored back into the price of rents, wasting additional taxpayer money. Can the Oregon Housing and Community Services Department justify subsidies to low-income families at $864 per month? Clearly, the government has a moral responsibility to help disadvantaged families, but there are smarter ways of going about it.

The goal of revitalizing downtown areas, however admirable, is foundering on the rocks of implementation. As Hayek observed, governments should not presume to know what’s best. The state’s profligate use of taxpayer money to provide life-support for fanciful developments is simply inexcusable.

*Hayek, Friedrich. The Fatal Conceit (Chicago, WW Bartley, 1988), 76.

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