Where’s the IE Housing Boom? Part 2: Ontario Ranch

In a recent post, we asked why there hasn’t been a boom in housing construction in the Inland Empire. While this is not something that keeps most readers up at night, folks employed in the IE need somewhere to live, and housing development in the IE provides some form of a check on price increases in LA/OC. Thus, if housing prices in the IE are not kept low, prices in LA/OC are able to rise even further. Lastly, understanding the dynamics of housing construction in the IE might help shed light on region-wide issues in housing production.

In the previous post, we looked at general trends in employment, housing starts, and wages in the LA/OC and IE. Here, we’ll look at a specific area that at first glance should be booming, but is seeing relatively little construction: Ontario Ranch.

Ontario Ranch is the southeastern portion of the City of Ontario, one of the major commercial centers of San Bernardino County and an important hub in the booming trade and logistics industry. The lackluster growth in Ontario is not for want of zoning support or lot availability. There are currently 9 approved specific plans in Ontario Ranch, with 2 more in process, for a total entitlement of almost 18,000 dwelling units (DUs). The map below shows the approved specific plans, and the following table shows the number of approved DUs.

OntarioRanchSpecificPlans

OntarioTable

True to SoCal development patterns, the plans are thoroughly suburban, but still provide respectable densities. The 11 specific plans combined achieve an average density of 5.5 du/acre across an area just over 5 square miles. At Ontario’s current household size (3.64), this is about 12,700 people per square mile – not particularly dense by LA standards, but dense enough that a walkable suburban environment should be achievable. In addition, the city’s general plan provides several other areas zoned for mixed use and medium density (11-25 du/acre) residential.

To the south, Ontario Ranch directly abuts the City of Eastvale, in Riverside County. Eastvale, a perennial favorite of noted anti-urbanist and NIMBY Joel Kotkin, grew from dairy farms to a city of 50,000 in just about a decade between 2000 and 2010. A quick perusal of record sales shows that some of the initial construction in Eastvale, in 2001, sold for around $210,000 to $225,000 and about $120/SF. This is about $280,000 to $300,000 or $160/SF in today’s dollars. Equivalent new single-family construction is currently listed as starting around $385,000.

Thus, real prices that are higher than those that induced the Eastvale boom in the early 2000s have failed to induce a boom in Ontario Ranch, directly adjacent. Here’s the number of housing units permitted in Ontario since 1980.

OntarioPermits

(Aside: note how much bigger the 1980s boom was, and driven by multi-family!)

In a perfectly competitive environment, assuming the cost of supplying houses has not changed appreciably, prices in Eastvale should not have rebounded to where they are. Ontario Ranch is slightly further from Orange County, but not enough to create such a steep price gradient. Once prices reached around $300,000, new construction in that price range should have been unleashed. Yet Ontario is on pace to permit less than 500 housing units this year, at which pace it will take over 3 decades to build out Ontario Ranch, over 3 times as long as it took to build a comparable amount of housing in Eastvale. What happened?

As we mentioned in the previous post, builders have variously cited labor costs, materials costs, tight project financing, land costs, and tight mortgage standards as reasons for the lack of construction. The first three are beyond our ability to analyze here. Land costs would not appear to be an issue in Ontario Ranch, where the developers responsible for the permitted master plans presumably already own the land. Tight mortgage standards are likely a factor; with stagnant wages, the 2000s boom was only possible thanks to outrageously bad lending.

Another possibility, though this is speculation, is that there is an unwritten rule that new SFR construction can’t be allowed to cause a decrease in nominal prices. While prices have increased lately, in many places, they have not yet surpassed the bubble peak in nominal terms. Nothing will turn out the NIMBYs faster than the threat of declining property values. In such a case, construction will remain at low levels while nominal prices return to the bubble peak. With low inflation, this also results in a considerable increase in real prices.

Whatever the reason, there doesn’t seem to be a housing boom on the horizon in the IE. For LA/OC, that means that unless we take action to align public policy with the goal of affordability, further increases in the cost of housing are probably in store.

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4 thoughts on “Where’s the IE Housing Boom? Part 2: Ontario Ranch

  1. Kunal Jariwala

    This is a great article! I currently live in Orange and am considering moving to Ontario Ranch area. Its a lot more space for the money compared to Orange. At least to me the big question mark are the schools there. Ontario Ranch has plans for building new K-12 schools for their residents but that is all they are, plans. The Ontario Ranch plans are pretty lofty but if the demand for housing and therefore construction stays low than I would assume many of those plans will not be implemented. What is you assessment on the school situation in Ontario Ranch? Do you think there is adequate demand for housing in that area?

    Reply
    1. letsgola Post author

      Thanks for your perspective… interesting to hear from someone who’s considering moving to the area and looking at the trade-offs. I couldn’t find any information but I would assume that Ontario Ranch has special district fees (aka Mello-Roos fees) to pay for school construction and they will be built after the population hits a certain threshold. The city planning department might be able to provide more information.

      As for the demand for housing… if prices in LA & Orange County keep going up that will increase demand in Ontario Ranch. Also, I think demand in Ontario will go up after they finish the projects to widen the 91 freeway. Right now congestion makes that commute very tough; when the freeway projects are done and travel time goes down a little, that will induce more people to move there. Still it will be tough to have a real housing boom unless the developers can get some cheaper entry-level houses on the market. Of course, I could be wrong about this – predicting the future is hard! 🙂

      Reply

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