Category Archives: Uncategorized

Points Based Immigration: Un-American

We hold these truths to be self-evident, that all men are created equal.

Republican Senators Tom Cotton (AR) and David Perdue (GA) have introduced a bill called the “RAISE Act” which would severely curtail legal immigration, reducing green cards from over 1,000,000 to about 500,000, the yearly number of family-sponsored immigrants to 88,000, and the yearly number of refugees to 50,000. It would create a points-based immigration system allowing 140,000 immigrants per year, where immigrants would be chosen on a points system, with younger, wealthier, more educated people scoring a higher number of points. The proposal was immediately backed by Donald Trump and ghoulish policy adviser Stephen Miller. Unlike health care or infrastructure, racism seems to be one policy area that the president actually cares about, having appointed regretfully competent people to run the Department of Justice and ICE, and willing to spend political capital to achieve specific outcomes.

As such, it is important to push back against this proposal as firmly and relentlessly as possible. The policy proposal for a points-based system has received far more respect than it deserves, with people debating the effectiveness and suitability of the specific standards, e.g. should a foreign professional degree count for less than a US professional degree, or should an 18 year old with $1.5 million dollars receive the same number of points as a 50 year old with $1.8 million? This is like phrenologists debating the relative importance of an enlarged constructiveness organ compared to an underdeveloped benevolence organ.

Set aside the absurdity of a points-based system to enter America being proposed by a set of people would almost surely fail to qualify under the proposed system. Set aside the hypocrisy of such restrictive immigration policy being proposed by people whose ancestors came to America when the federal government’s requirements were having about $600 and not being insane or carrying disease – or, as incredible as it may sound today, when the federal government was not involved in immigration at all. Never mind that it lays waste to the obvious lie that Trump’s base was concerned about illegal immigration. Forget that the points-based immigration quota is so low that it would have been exceeded by peak Ellis Island immigration alone in about 28 days.

Points-based immigration is un-American. End of question.

The promise offered by America when all those boats steamed into New York Harbor was the opposite of a points-based system. Any system that requires hard measurement of people’s value as human beings is wrong. Any such system is going to inherently privilege people who are already privileged: the people who already had the opportunity to learn English, obtain education, amass wealth, & gain social stature in their home country. Any such system is going to punish people who were unfairly discriminated against, who were already scored as unwanted rejects with nothing to offer.

To all of that, America said screw you, and gave millions of people a chance at a better life. America didn’t just theorize that immigration was good and that those people would help build a stronger, more innovative country, we proved it.

The darker side of America has always been there too, from the Know Nothings in the 1850s to the Immigration Act of 1924, from the Chinese Exclusion Act to Stephen Miller’s dull gaze and empty head. If we believe in America at its best, we need to push back against the RAISE Act on principle. The RAISE Act would deny America to the people who need it the most. Engaging in discussion on the specifics only legitimizes a concept that should have no place in American policy to being with.

Are Suburbs Triumphant?

In a recent post, I speculated that suburban development in the IE might be on the rebound after a decade of slow housing construction. Other cities, especially in the Sunbelt & Texas, have reached their pre-crisis housing output.

After the financial crisis, there was a moment when urban counties were growing faster than suburbs, and pop wisdom held that suburbs were dead and people were returning to cities. This was always suspect, because severe zoning restrictions were clearly going to make it difficult for many people to do so. Now, though, with suburban construction picking up and surveys consistently showing that most people want to own their own single-family home, it feels like the pendulum of pop wisdom has swung too far in the direction of suburban triumphalism. So let’s look at a few ways that post-crisis suburbanization is different than the pattern that had held since World War 2.

Suburbs Are Back, But They’re Not the Same

Like an athlete returning to play after a serious injury, the suburbs don’t have the same range of skills they once did.

One of the most obvious ways suburban development is different is a lack of golf course development. When I worked in highway design, we did a fair amount of land development work for new residential projects, including communities centered around golf courses. Nobody is building golf course development now; the number of courses in the US has been slowly declining. The decline has created a desire for infill development in some places; for example, Rancho Cucamonga is allowing housing to be constructed on a former course.

Another obvious difference is the lack of new commercial construction. Whether it’s due to oversupply from before the crash or the increasing impact of online retail, as of a few years ago, no new enclosed malls had been built since before the financial crisis. (I tried to find updated info but couldn’t.) Mall vacancy was very slow decline after the recession and has actually ticked up the last couple months. Since many suburbs depend on sales and property taxes generated by commercial development, the lack of growth in retail space strains municipal budgets.

Meanwhile, while some cities have recovered, national housing production remains at historically low levels, including for single-family housing. Some fast growing cities, like Atlanta and Phoenix, are still not producing as much housing as they once were, despite increasing prices. As Calculated Risk frequently notes, suburban builders are not producing entry-level homes they way they once did.

The Desire for Cities is Real

While the increase in desire to live in cities, or at least walkable neighborhoods and older suburbs close to cities, may have been overstated, it is nevertheless very real. On a recent walking tour of neighborhoods in East Hollywood, Silver Lake, and Los Feliz, someone mentioned this to me as one of the primary differences between now and the 1980s, and I think they’re right.

In the past, except for a few enclaves like Beverly Hills, Bel Air, and Hancock Park, people with the means to move to new development in the suburbs generally did so. For whatever reason, some people with money have decided they want to live closer to the city, and they are outbidding lower income people. Jed Kolko did an analysis in 2016 and found that people aren’t urbanizing, but money is. The result is that the people moving to new suburbs aren’t the wealthier people, at the same time that suburbs are not producing entry-level housing and are being squeezed by lackluster commercial growth.

We Still Need to Upzone Cities

A lot of new housing is going to be produced in suburbs, and we need to look at the reasons why it’s not as affordable as it once was. But that still won’t solve the problems in cities outlined above. People want to live closer to cities, and if we don’t build enough housing, somebody will lose out.

Where’s the IE Housing Boom: Lift Off?

I’ve written a few posts wondering why there’s no housing boom the Inland Empire. Prices have recovered, the zoning is there for it, and there’s limited opportunity to build in Los Angeles & Orange Counties. I started working on this next post as another entry in that series, to show all the approved residential master plans that are out there but not being built.

However, in the last couple months, there has been a noticeable increase in the number of permits pulled for housing construction in the IE.

IE-permits

June 2017 saw 2,076 permits, the first time since August 2007 that the number of permits in a month has been over 2,000. It appears that the IE’s lost decade of housing production might be over. Single-family builders are going to be wrapping up the timid completion of developments in partially built projects, and looking for bigger opportunities. So instead of asking why these residential master plans aren’t being built, consider this a field guide to what might be happening in the next few years.

Chino & Ontario

The closest greenfield developments to LA & OC are probably the best candidates to boom. In Chino there’s a plenty of space to build in The Preserve, and Ontario has a huge amount of development potential in Ontario Ranch.

The map below shows the approved master plans with Chino at the bottom and Ontario at top. I overlaid these from the planning documents, so the colors are not entirely consistent from plan to plan, but they follow the same pattern. Yellow and light orange are single-family, dark orange and brown are multi-family, red is commercial, purple is mixed use, blue is public (schools etc), and green is open space. For reference, the distance between Archibald Ave & Milliken Ave is 2 miles.

01-Chino-Ontario

Chino & Ontario provide (relatively) easy access to LA & OC, via the 71 north and 60 west to LA, and the 71 south and 15 south to OC. Riverside County is planning to start construction later this year on express lanes on the 15 from the 60 south to the 91, which will make commuting from Ontario Ranch more appealing.

Fontana & Rialto

Further north and east, there’s still a fair amount of undeveloped land in the northern parts of Fontana & Rialto. Fontana’s recently approved Westgate specific plan, near the junction of the 210 and the 15, allows for up to 3,248 dwelling units. Further up the 15, another set of plans allow another 5,000 units. Across Sierra Ave in Rialto, near the top of the image, Lennar is finishing up development in Rosena Ranch, and DR Horton is building the first neighborhood in Lytle Creek Ranch, zoned for 8,400 dwelling units. The distance from Sierra to Citrus is 1 mile.

02-Fontana-Rialto

Lake Elsinore

Heading the other direction on the 15 from Chino & Ontario, south to Lake Elsinore, there are master plans north and south of downtown ready to go, with several thousands of units of potential.

05-LakeElsinore

Perris & Menifee

Moving east to the 215 corridor, there are also plenty of developments that could be built. Between Parkwest, Green Valley, Riverglen, & Riverwoods, there is zoning for over 8,000 dwelling units. The Menifee North plan, beween Romoland and Homeland, allows about 2,800 units. And Winchester Hills on Domenigoni Parkway a few miles east of the 215, which has been frozen in time for almost a decade, allows over 5,000 units. The distance from the 215 to Menifee Rd is 2 miles.

04-Perris-Menifee

We’ll know the IE is back for sure when construction starts on a big project east of the 215. The big projects have been dormant for a long time. But with the closer-in developments in Menifee nearing completion, how long can that last?

Yucaipa to Banning

East of San Bernardino, there’s a string of approved plans in Yucaipa, Calimesa, Beaumont, and Banning. Combined these will allow almost 20,000 dwelling units. The bottom of the large plan east of Beaumont is 1 mile wide.

03-Yucaipa-Banning

There’s Lots of Development Capacity in the IE

This is just a sampling of the master plans that are approved for construction in the IE, and doesn’t even account for any of the development that can occur under the normal zoning in the many places not covered by a specific plan.

In previous posts in this series, I’ve argued that zoning is not the defining restriction on development in the IE. This is in contrast to LA & OC, where sky-high prices suggest that upzoning would unleash a large amount of development. Issues in the IE seem to relate more to land costs and impact fees, but perhaps prices have hit a tipping point where these obstacles can be overcome. If so, expect to see the number of housing permits issued in the IE continue to rise.

What Do Anti-Market Rate Housing Advocates Want?

“If you cannot afford to live here and your kids can’t have decent housing, you should look at where you can afford.” So said Jim Righeimer, Mayor Pro Tem of Costa Mesa. While a housing construction moratorium failed in LA, Costa Mesa passed one of the most restrictive development measures in the state last November – any project that would result in 40 or more dwelling units being built within half a mile of each other within 8 years must be approved by a public vote.

This blog obviously doesn’t agree with that point of view, holding that California cities ought to allow a lot more construction of all types of housing. But it is a point of view that is at least consistent with the actual outcomes achieved by its policies. The cost of housing is driven up policies that heavily restrict housing production, and people are left to fend for themselves in the distorted market that results. If you can’t afford Costa Mesa, you go to Corona; if you can’t afford Corona, you go to Beaumont; and if you can’t afford Beaumont, you go to Buckeye. The answer of people who like this arrangement to the shortage of affordable units and high rent burdens is that they really don’t care.

If, on the other hand, you claim that you do care about the shortage of affordable units and high rent burdens, you ought to come up with a set of policies that can achieve the outcome you want. As I see it, there’s three coherent packages of housing policy:

  • You can be a NIMBY and be indifferent to the pain caused by housing costs. This is the position outlined above.
  • You can favor more market rate construction to meet the housing needs of most people, plus dedicated more dedicated affordable units, housing subsidies, and other policies to meet the needs of low-income people. This is the position of most YIMBY groups in California, despite many straw man claims otherwise.
  • You can favor a massive government public housing construction program, where the government provides many or even most people’s housing. This is the position of some of the more radical YIMBYs.

What you can’t do is claim to care about affordability but offer no plan to build housing in the quantity needed – and recall that for LA County alone, we are estimated to be 1,000,000 housing units short since 1980. Changing housing policy without addressing the supply problem is like playing musical chairs. If you have more people than chairs, it doesn’t matter how much you change the rules, someone is not going to get a chair. Someone is going to have to move to Buckeye.

This is where YIMBYs and pro-housing types get frustrated with the current state of housing policy advocacy in California. Arguments to allow a lot more market rate construction get pushed back with claims that the market will never solve the problem. But that only leaves the third option, and it doesn’t seem like any anti-market rate advocates are pushing for construction of public housing on the scale that’s needed. The only ones actually arguing for this are the more radical YIMBYs.

It’s very strange to argue that market rate construction won’t solve the housing shortage, but then pin your hopes on policies like inclusionary zoning and higher below-market-rate (BMR) percentages, which could only hope to have a major impact on affordability if an enormous amount of market rate development to subsidize them is built. It’s very strange to argue that housing is a right, but then, rather than tax the public at large like we do for things like schools and fire departments and food stamps, insist that new market rate development alone bear the burden of ensuring that right.

Many progressives have an instinctual dislike for “developers” as a concept, since they are generally presumed to be well-off businesspeople running big enterprises, looking to get even richer. (Never mind that this is an unfair stereotype that ignores many small-time developers.)

However, politics is the art of the possible, and it seems to me that many people in California need to decide what exactly it is that we want. If we’re going to solve California’s housing crisis, and we’re not going to argue for the state to build 500,000 units in LA County, we need to work with the development community to figure out policies that can work for everyone. And to be honest, I don’t even think the policies are that hard, it’s the politics of getting a pretty diverse set of groups to work together.

But to do it, we have to decide we actually want to solve the problem.

SoCal Rain Update: Almost a Wrap

First of all, I would like to apologize for single-handedly jinxing and ruining a banner water year for SoCal, with this closing paragraph to the last update:

The last 6 years are a reminder that for SoCal the faucet can turn on just as quickly as it turns off – and vice versa. The forecast for the next week or so is dry and in fact once, water year 1996-97, LA had no measurable rain between March 1 and the end of the water year. So now that I’ve sufficiently jinxed things, you’d better hope extra hard for some more drought relief this year!

While we managed to escape without nothing, all we have to show for March, April, and May is 0.49”, bringing the total for the water year 2016-17 to 18.99”. June through September, the end of the water year, has only brought more than 1” of rain 14 times out of 140 years of records, so let’s call this an almost wrap and see where this year stands.

Currently, downtown LA is at 18.99” of rain for the water year. This is about 4” greater than the yearly average, and well past any of the drought years. However, it’s a little short of the last good year, 2010-11. The strong El Niños of 1982-83 and 1997-98 have left us in the dust.

LAraintable-20170601LAraingraph-20170601

To put this year in context, here’s where it falls on a histogram of LA precipitation. Falling right into the 18”-20” bin, we can see that this year was indeed wetter than typical, but not a once-in-a-lifetime record breaker like northern California had.

water-hist

The multi-year water trends show we are still in a multi-year precipitation drought condition, with the 5 and 6 year totals just barely above record lows. However, with WY 2011-12 (8.70”) and WY 2012-2013 (5.93”) falling out of the 6 and 5 year totals, respectively, for next year, hopefully those totals will continue to improve.

water-multiyear

Looking at the distribution of LA rainfall, this year falls right around the 75th percentile. Again we can see that while this was a wet year, it was by no means into the rarefied territory up above about the 85th or 90th percentile. This was the 35th wettest year in LA, out of 140 on record. By comparison, the 4-year drought period 2012-2016 had three years in the driest 11 on record (2015-16 #11, 2013-14 #8, and 2012-13 #7).

water-distribution

Finally, we should note that while it is rare for southern California to get much rain between now and the end of the water year in September, it has happened 6 times. Most often this precipitation comes in September from tropical storm remnants, such as the 2.39” received in September 2015 from the remnants of Hurricane Linda. This improbable event alone bailed out water year 2014-15, which otherwise would have been only slightly better the rest of the 2011-16 drought years. Meanwhile, the only tropical storm to make landfall in California in the 20th century brought over 5” of rain in September 1939, causing severe flooding. So while this post is probably it for the year, there’s always a chance otherwise!

Why is New Housing in California So Expensive?

You probably had an answer to that before you even finished reading the question. But I’m willing to bet it’s not the whole answer. There are a lot of things that go into building housing, and California is a big place, so different things might matter more in different places.

If you’re reading this blog, odds are the first thing that came to your mind is zoning. In the already-dense built-up parts of LA and OC, zoning is indeed the most likely culprit, since it is simply illegal to build more housing on most of the land. But go further east, and there’s lots of land zoned for residential development, yet prices are still much higher than comparable locations in other states. Looking at this could help shed light on factors other than zoning.

The Inland Empire Should be as Affordable as Phoenix

Here’s a look at the cheapest offerings in the Inland Empire and in Phoenix from DR Horton, one of the biggest homebuilders in the US, and of the big builders operating in California, probably the most focused on trying to build entry-level homes.

DRH-IEDRH-PHX

The cheapest offering in Phoenix is $136k; in the IE, $264k, making the cheapest new construction in the IE almost twice as costly as Phoenix. That’s quite a difference. In terms of amenities, the IE does better than Phoenix – driveable to SoCal’s beaches, close to a bigger urban center in LA, closer mountains, better climate – but not enough to justify that margin. And it terms of wages, Phoenix passed the IE after the Great Recession and has seen substantial wage growth in the last two years, while IE wages have been stagnant. So not only are IE residents getting hit with higher housing costs; their wages aren’t keeping up. Small wonder that the Phoenix MSA was the fastest growing region of the country last year, adding 82,000 people.

fred-earnings

Taking all of DR Horton’s projects in the IE and in Phoenix, plus projects from Pardee Homes (another entry level builder) in Riverside County to fill things out a little, here’s the cheapest house offered in each subdivision, plotted against distance from the bedroom community to the central city.

price

As we’d expect, housing gets cheaper the further we get from the central city. You might look at this and think that the IE could hit Phoenix levels of affordability another 20 miles out, but cheap housing that far from the center city wouldn’t really do much to help. People will commute from Buckeye to Phoenix; no one is commuting from Barstow to LA. (Note: the low-cost developments close to Phoenix are all in South Phoenix, a historically black and Latino neighborhood that faced all the systematic discrimination and disinvestment you’d expect.)

Replotting the data looking at the cheapest house offered in each subdivision against the size of the house is very revealing.

pricesize

The smallest new houses in the IE are in the neighborhood of 1,600 SF (though I know KB Home has a project at 1,430 SF), while in Phoenix many project are around 1,250 SF and one is as low as 1,100 SF. This is counterintuitive to housing prices being higher and wages being lower in the IE; we’d expect to see smaller houses in the IE than in Phoenix. The incremental cost per square foot is not substantially different between the two regions, but IE housing developments appear to face structural issues that add about $100k to the cost of a house. The same issues are probably responsible for making small houses infeasible in the IE.

Now looking at the largest house offered in each subdivision, let’s plot the cost per square foot versus distance from the city center.

priceSF

While there will always be variability between municipalities, the overall trend is what you’d expect – cost per square foot declines as you move further from the city. This is a proxy for how much people value being able to live closer to the center.

Finally, let’s look at cost per square foot versus house size.

sizeSF

The cheapest new construction in the IE is around $120/SF (though KB Home has a project in Victorville that hits $100/SF) while in Phoenix many projects are under $100/SF. Note that cost per square foot doesn’t seem very impacted by house size; this is because we’re looking across the whole region. Within a given subdivision, house prices per square foot are always lower for larger houses.

Why is IE Housing So Expensive?

I think this should prompt a deeper look at what goes into the cost of building housing in California. Starting from the bottom up, the inputs to housing are:

  • Land – the physical place where house is built
  • Zoning – rules that specify how many houses you can build on a piece of land
  • General Impact Fees – fees paid to a municipality or service district by all development, such as parks fees & school fees
  • Special District Fees – fees paid by development within a special district, commonly known as Mello-Roos fees in California
  • Materials – the physical products that make up a house, like wood and drywall
  • Building Code – the regulatory requirements that specify the details and quality of construction
  • Labor – the people who assemble the raw materials into a house
  • Soft Costs – the architects, engineers, planners, code consultants, & other professionals whose services are needed to design & permit the project
  • Carrying Costs – the interest on loans, the taxes on property, & other similar costs paid in the time between the purchase of the land & sale of the house

Land

The most basic input to housing is having a place to build. Unlike in LA/OC, there’s still a lot of greenfield land in the IE that is zoned for residential development or has approved master plans. High housing costs should bring that land to market to be developed.

Via @FactChecker23, we have this set of price data for 46 metro areas, including home (total), structure, and land costs. Here are plots of total home cost and land cost for the IE and Phoenix.

IE-PHXhomeIE-PHXland

Here is a plot of the difference between IE and Phoenix home prices, with a breakdown of the delta into structure costs and land costs.

IE-PHXdeltas

With the exception of a strange jump in 2011 (that almost suggests a change in methodology of the underlying component data), the structure delta is remarkably stable throughout the housing bubble, Great Recession, and recovery. $20k to $30k of the price difference between the IE and Phoenix is in the physical structure itself. The large swings are driven entirely by land, with IE land prices rising higher than Phoenix during the bubble and recovery, and crashing to par during the recession.

This pattern suggests a structural issue with land availability. This could be due to second-order factors like CEQA, though as noted above there are many greenfield sites where master plans are already approved. However, another possibility is that in California, the inefficient property tax structure resulting from Prop 13 decreases the penalty for land speculation, because taxes do not keep pace with land values. In Arizona, property assessments increase with the value of the property and the increases are not capped like they are through Prop 13. Another possibility is that ownership of developable land in the IE is more concentrated, making collusion to drive up prices easier.

Zoning

Zoning drives up the cost of housing by limiting the number of houses that the cost of land can be spread across. A detailed analysis of density and zoned capacity in the IE and Phoenix is well beyond the scope of this blog. However, as an example, consider the general plan of Buckeye, a growing suburb west of Phoenix with very affordable housing. Much of the city is zoned for 3-6 dwelling units per acre (du/ac), which is typical of “medium density” zoning found in many IE master plans.

General Impact Fees

General development impact fees are fees imposed by cities on new development that are intended to pay for the costs of providing public services to the new development. Again, a comprehensive review of general impact fees is beyond the scope of this blog.

However, like with land costs, the long shadow of Prop 13 means that basic structure of taxation and municipal finance in California lends itself to high development impact fees. Unable to reassess properties to true market value or increase the tax rate, and limited in their ability to assess fees by subsequent propositions, California cities increasingly rely on development fees to plug holes in municipal budgets. Young cities in the Inland Empire, such as Jurupa Valley and Menifee, as well as other inland cities that have annexed land in recent years, face additional budget shortfalls as a result of faulty city finance legislation passed by the state during the financial crisis. The convoluted system of state funding to municipalities is itself a legacy of Prop 13.

To take some example, the city I live in, Glendale, charges a fee of $18,751 per multi-family unit (page 115 of 146) and $21,828 per single-family unit for parks alone. That fee could easily be expected to add $100-$150/month to baseline rents. In the Inland Empire, cash strapped cities have driven total impact fees up as high as $65,000 per unit in Riverside County and $75,000 per unit in San Bernardino County – around 25% of the cost of some of the cheapest development.

Meanwhile, the city of Buckeye charges literally no parks fee on most new residential development. The sum of parks, library, streets, public safety, water, and wastewater fees ranges from about $10k in the lowest cost districts to $20k in the highest cost districts. Across Maricopa County in Surprise, the sum of fire, police, library, parks, general government, public works, water, and wastewater fees is similar, ranging from about $10k to $18k. Surprise charges a parks fee of $785 – less than 5% of what Glendale charges, despite Glendale being a major secondary central business district with a large commercial tax base and large sales tax generators.

Lastly, it should be noted that impact fees can be used outright as a way for NIMBYs to stop development, since higher fees will decrease construction.

Special District Fees

Special district fees, or community facilities districts, more commonly known as Mello-Roos fees in California, are additional property taxes assessed in special districts to fund improvements such as streets, water, drainage, schools, parks, and so on. Mello-Roos fees are assessed as parcel taxes, not based on real value, so the actual burden is much higher for lower value parcels. This encourages the development of larger, more expensive houses, because there is “more house” to spread the cost across. As far as I know, there’s no equivalent in Arizona.

Materials

The cost of materials fluctuates with both the supply of materials available and the demand for construction materials. While this could have national impacts, there is little reason to suspect the market for materials is so different between SoCal and Arizona that it would drive a regional difference in the cost of construction.

Building Code

Without doing much in the way of detailed investigation, we can say with some certainty that California’s building code has more stringent requirements. First, the seismic detailing required for safe construction in California should result in some increase in costs. Second, California has famously high standards for energy efficiency for new construction. It’s hard to say off-hand what the cost impact is, but these aren’t things we’d want to compromise on anyway.

Labor

California does appear to have higher construction labor costs than Arizona. Ideally, this would be a comparison between residential construction workers in the IE in Phoenix; however, data doesn’t seem to be available for residential construction, and I could only find California at the state level.

fred-constr

According to the NAHB, a single-family home generates 3 full-time jobs for a year. If IE labor costs were about $300/week higher than Phoenix, that would be almost $50,000 per house. However, builders should respond to higher labor costs by trying to use less labor, and higher-wage labor tends to be more efficient than low-wage labor. In addition, labor costs will scale with house size, so the impact of labor costs should be less on smaller houses.

This is a squishier thing to measure than land and impact fees, since there is no way to spread the cost of land out over more units than the zoning allows and no way to evade impact fees. Note that the NAHB’s estimate of average wages and salaries in building a single-family home is literally greater than the purchase price of the cheapest single-family construction in Phoenix. Finally, it should go without saying that driving down wages results in negative social outcomes in a way that decreasing the profits of land-owning rentiers  or reducing exorbitant impact fees does not.

Soft Costs

Soft costs – such as engineering, permitting consultants, architects, and so on – should vary more or less according to regulatory complexity, so if it is more difficult to permit new housing, higher soft costs would result.

Carrying Costs

Longer times between purchase of the land and sale of the home will result in higher carrying costs, both because of the additional interest that accrues over that time and the fact that longer lag times make projects riskier. An analysis of the impacts of this factor is well beyond the scope of this blog, but cities should do all they can to reduce the time frame and provide certainty in the permitting process.

Conclusion

There are many factors that drive the cost of building new housing. If California is serious about reducing the housing shortage in the state, it must look to and study regions that build new housing at lower costs, understand which factors are the largest cost drivers, and work to alleviate those factors that can be improved in a socially and environmentally responsible manner.

Four Southern Cities

This is way off topic, but back in March when the new Census population estimates came out, I tweeted about slow growth in Alabama and negative growth in Mississippi. I’m wondering why they aren’t part of the “new south”, generally taken to be fast growing Sunbelt cities like Charlotte and Atlanta. Why does Atlanta boom, but Jackson doesn’t? Many of the responses boiled down to “because it’s Mississippi” which is sort of circular logic.

I thought it would be interesting to compare population growth since 1860 in four southern cities: Jackson MS, Birmingham AL, Atlanta GA, and Charlotte NC. Since municipal boundaries in the US are illogical, often changing, and hard to trace, I’m using county level data, comparing the populations, based on the 2015 definitions of the metropolitan statistical area (MSA) for each city.

I also added an “Atlanta Redux” where I threw out the 9 counties (out of 29) in the Atlanta MSA that still, as of 2016, have not reached population 30,000. These counties are way out near the edge of the city and were only recently sprawled into the Atlanta MSA. Their inclusion in the regional population back to 1860 probably unfairly inflates Atlanta’s size at the outset of the Civil War, when counties 40 miles out would not have had much plausible connection to the city but still had some population. I’m including both the full MSA and the reduced version to let readers compare.

fsc-popa

Even the redux version of Atlanta was the biggest city of the four in 1860. Not much divergence is seen between Birmingham, Atlanta, and Charlotte until after World War 2. Jackson appears to have always grown more slowly, though this fate would not have been at all obvious to an observer in 1880, when Jackson was over 50% larger than Birmingham.

Plotting the population on a logarithmic scale can help us see patterns more easily, as the runaway growth of Atlanta makes the others look flat by comparison.

fsc-poploga

Plotted this way, the post-World War 2 growth of Atlanta and Charlotte doesn’t look unusual; it just looks like a continuation of previous trends. Atlanta, especially the redux version, starts growing a little faster than Charlotte after the war.

More interesting is Birmingham, which grew very quickly for decades after the Civil War, going from about 60% of Jackson’s size in 1870 to 120% of it in 1890. Birmingham even passed Charlotte for a few decades, going from 40% of its size in 1870 to larger by 1910. An observer in 1930 might have expected Birmingham to surpass Atlanta in another 10-20 years, especially the redux Atlanta. Jackson, meanwhile, experienced a strong decade from 1870-1880, but never grew very quickly again.

After 1930, Birmingham, which had been the rising star, began to fade, and was surpassed by Charlotte by 1960. So, what happened to Jackson after 1880? And what happened to Birmingham in 1930? I’ve yet to find out.

Another way to look at this data is to look at the amount of growth in the central county (where the main city is located) and compare that to the growth of suburbs. Here’s the breakdown for these four cities, with the central county on the bottom of the graph.

fsc-Jacksonfsc-Birminghamfsc-Charlottefsc-Atlanta

It is interesting that in Birmingham and Jackson, the central county stopped growing when the MSA as a whole started growing more slowly. However, it’s important to not try to read too much into this – did the MSA grow slowly because the central county was being neglected, or did the central county stop growing because there wasn’t much growth to be accommodated anyway?

One unappealing answer is that there is simply a great deal of luck in these outcomes. Obviously it helps for the city to be well run, but there are many factors making a complex result, and sometimes you just get bad luck. This rudimentary look is obviously not enough to tell us much about why these cities grew at different rates, but if anyone has any ideas, I’d love to hear them.