Tag Archives: Affordable housing

Company Towns Are Bad

This is one of those things that should be surprising to even have to mention, but the concept of company towns pops up from time to time in discussions on California’s housing crisis, so here’s a summary of why they are bad.

The specific proposal often takes different forms, but they are all variations of Gilded Age company towns (or Communist countries with internal movement controls if you like):

  • Workforce housing: because California’s housing crisis is so bad it’s impacting middle class professionals like teachers, some liberal communities have begun to feel embarrassed that people with “respectable” jobs can’t afford to live in the city where thy work. This generosity rarely extends to people who do things like work at 7-11, who are expected to have to endure long commutes as the price of their insistence on working in the service industry.
  • Company housing: misdirected anger at the tech companies that are a big part of California’s economy results in calls for these firms, which certainly have the profits to do so, to build housing for their employees to take pressure off the local housing stock.
  • Tying new office development to new residential development: this is a proposal to force cities to permit enough housing to accommodate the employees in new office space that they permit.

The first two proposals are similar enough to discuss as one, with the main difference being that in the first the government provides housing for its employees, while in the second the private sector provides housing for its employees.

These proposals are bad because they demote the employees to second class citizenship, where the ability to secure housing is contingent on employment with a single employer. It is not hard to see how this will easily lead to employees surrendering their rights and not speaking out against institutional problems, because of the fear of losing their housing. It also implicitly creates a third class citizenship, occupied by the elderly, the unemployed, government employees whose jobs are not deemed important enough to get them housing, and people employed by businesses that do not have the huge profit margin needed to provide subsidized housing.

Simply put, people’s ability to find housing should not be dependent on them staying at the same employer.

The third proposal may seem appealing because it targets recalcitrant municipalities like certain Silicon Valley cities that permit new office space and see a large amount of job creation, but allow almost zero new housing to be built. The idea here is to force these cities to build more housing, to relieve pressure on the housing stock in nearby cities that have not had the same amount of job growth.

The unintended consequences of such a policy are likely to be bad. The recalcitrant cities are just as likely, if not more likely, to respond by stopping or slowing office development. This will lead the high-profit industries to outbid small businesses and lower margin industries for office space, hurting the region’s economy and the people who work for those smaller or less profitable places. If we want to make cities that don’t build enough housing build more, we should just do that and not make it any more complicated than it needs to be.

History suggests that jobs-housing balance can only be achieved on a regional level. While coastal communities like Santa Monica and Venice complain about too much job growth (oh, the entitlement!), cities towards the edge, like Santa Clarita, Palmdale, and Moreno Valley worry about a jobs-housing imbalance in the opposite direction – too many houses and too few jobs. Employment always seems to like to concentrate to a greater extent than housing, perhaps because the efficiencies achieved are greater. It seems likely that we will always have more jobs than housing near the employment centers and more housing than jobs on the edges. In addition, policies to try to achieve jobs-housing balance at a local level ignore the fact that people changes jobs from time to time, and many households have more than one income earner.

There are a few places where company towns or workforce housing make sense. These are generally isolated towns where the economy is dependent on one enormous employer or one dominant sector. Examples are mountain resort towns, island resorts, and remote mining towns. Resort towns often feature a large number of second homes, owned by people with much greater means than local service industry workers. They may also face serious natural or imposed constraints on development, such as very limited space suitable for building, limited water, or business development plans that place a high priority on keeping the town to a small size or maintaining the appearance of natural surroundings.

These unusual circumstances certainly do not apply to any city in California (except maybe Avalon due to water availability, a desalination plant would be expensive for a city so small). People in California already face precarious housing situations due to the high cost of owning and renting; many would have a hard time keeping their housing upon loss of a job. The solution is to make housing cheaper for everyone in California and reduce people’s dependence on any particular employer for housing, not increase it.

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Zoning Capacity Needs to Be Much, Much Higher

If you follow on Twitter, you’ve probably seen the graph below showing how much building capacity was lost due to downzoning in Los Angeles. The number of people that could be reasonably accommodated was reduced by more than half.

FrameWORK_Housing_ZoningCapacity-1024x748

When pro-housing advocates talk about the need to upzone, one common response from opponents of development is that there already are underutilized parcels that have fewer housing units than permitted by zoning. Why, they ask, is upzoning needed if developers aren’t even using existing parcels to their full potential.

It’s not hard to understand why upzoning is still necessary on a technical level. The microeconomic decisions of many actors will mean that a city is always below its zoned housing capacity. In many instances, owners are satisfied with the buildings already on their property, and don’t want to rebuild. In many other instances, there may be available zoning capacity, but not enough to make it profitable to reconstruct. For example, a lot might have 4 units on it and be zoned for up to 5 units. That property will not be redeveloped until prices get extremely high. Similarly, LA has many one-story retail buildings on C2 commercial zones, that could be redeveloped to R4 density (1 unit per 400 SF lot area) but with a max FAR of 1.5. It’s not worth it to demolish a rent-paying commercial structure for so meager a residential FAR.

Applying this logic to other common human necessities reveals on a much more fundamental level how weak the arguments against upzoning due to available capacity are.

For example, when you go to the supermarket looking for bananas, you don’t expect to be told that they have plenty of canned soup and won’t be ordering any more food until those are used up. People like to cook and eat many different things, and reasonably expect the supermarket to offer a wide variety of things to buy. How dull a culinary world would it be if we produced just enough food for people to survive and nothing more? If a farmer goes to plant kale, we don’t stop them from doing it because we’ve already got plenty of soybeans.

When you go to buy clothes, you don’t expect the retailer to have only one outfit, and told to take it or leave it. People like to wear lots of different kinds of clothes. How dull would the world be if everyone had to wear the same thing? Or consider a bookstore. Would you be satisfied if you went to Amazon and they only had 100 books, and weren’t planning to order any more until those were gone?

Likewise, people need a huge variety of buildings in cities to thrive. Providing people with more options creates greater opportunity for them to live their lives and pursue their dreams. A city that is zoned to allow barely enough housing is going to forfeit an enormous amount of human spirit and dynamism, in addition to burdening many of its residents with high housing costs. Zoning needs to allow people the flexibility to grow and try new ideas. In SoCal that means we need our zoning capacity to be much higher than it is today.

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.

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.

S is for Snake

Long-time riders will not be surprised that this blog has a dim view of Measure S, the NIMBY land use initiative on the March 7th ballot. Measure S would put a minimum two-year moratorium on any new housing that requires a zone change or general plan amendment – in the case of the latter, even for projects that are 100% affordable. The reasons Measure S is bad have been well explained, so I won’t revisit them here.

However, the level of deception being used by the Yes On S campaign is atrocious. That mendacity deserves to be remembered on its own. And anybody who still finds themselves unsure how to vote on S should ask: why do the proponents of S feel the need to lie so profusely?

Set aside the fact that the vast majority of funding for Measure S – well over $4 million – comes from an AIDS non-profit organization. There is a clear pattern in the Yes on S campaign of lying about the intent of the initiative and lying about support for it.

It started innocuously enough, with the Yes on S campaign crowing about an endorsement from Leonardo DiCaprio. Eventually it was revealed that DiCaprio never endorsed S and the campaign walked back its claim, blaming it on a communications snafu.

However, about a week ago, many residents of Los Angeles found this flyer in their mail. It doesn’t come right out and say the mayor endorses S, but it sure implies that. Garcetti is strongly opposed to S. Oh, and the quote was not actually something Garcetti said. It was something they wrote, in a letter to him. NBD though, right?

sgarcetti

Apparently uncertain of their ability to pass Measure S on NIMBY power alone, the backers have also stooped to trying to capitalize on well-placed concerns about housing in low-income neighborhoods, where many people are rightfully worried about eviction and displacement.

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This is, to put it mildly, not true. Measure S will not encourage new construction of affordable housing, because Measure S does not contain any mechanism to do so. Measure S will not protect rent-stabilized housing, because Measure S says literally nothing about rent-stabilized housing. In fact, Measure S will probably destroy rent-stabilized housing, because Measure S is perfectly happy to allow rent-stabilized housing to be destroyed by projects that comply with the zoning.

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Now we are entering rarefied space. Measure S does nothing at all about evictions. You know how many times eviction is mentioned in the text of Measure S? Zero.

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Hard to top the chutzpah of the eviction flyer, but they managed to do it. Measure S doesn’t do anything for rent-stabilized housing or affordable housing, let alone housing the homeless. The sheer audacity of claiming that a moratorium on zoning changes and general plan amendments would somehow lead to helping get 1,200 veterans off the streets… I think I’m gonna be sick.

The campaign materials produced by Measure S do not present the true intent of the initiative at all and in many cases are outright lies… or, dare we say it, alternative facts? If someone is going to such lengths to hide their true intentions, you can be sure they don’t have your best interests at heart. If you truly care about affordable housing, rent-stabilized housing, or helping the homeless, you should be very wary of alliances with self-funding egomaniacs. They’ll betray your trust as soon as they don’t need you anymore.