Tag Archives: Inland Empire

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.

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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.

Three Stories

On Sunday, I traveled back from the east coast, and met three people who experience LA in very different ways.

The first person barely made it onto our 6am flight, having received an epic send-off party from friends the night before. They were fresh out of school, and had just landed their first job at a marketing firm in El Segundo. Sunday they moved across the country; Monday was their first day of work. They got an apartment in El Segundo, and were excited to live near the beach and start their job, but were worried that not owning a car would make it harder to make friends. I offered a welcome and encouragement, but flying out of Boston, I couldn’t deny that not having a car in El Segundo would impact one’s social life.

The second person picked me up on the upper level of the LAX central terminal area – a driver for a popular ridesharing app. They had moved to LA in 1990 with a sibling to try to pursue a career in music. It’s a tough industry and the early 90s were a very tough economic time for LA, and they hadn’t found the success they’d hoped for. They now live in the far west of the Valley, having gotten a deal on rent from an in-law. The sibling had already departed for the Midwest; they were considering doing the same, where their money would go a lot further.

The third person is a friend of a friend, who stopped by to chat after lunch. They had moved to the Inland Empire a couple years ago to help take care of family. However, they live in a very family-oriented area (like you do in the IE) but do not have children, and miss the social and cultural opportunities of LA. The long drive from the IE makes it difficult to take advantage of the city, and the IE does not offer the same opportunities for one’s personal life as LA.

These are three people out of 18 million in LA/OC/IE, at different points in life, going in different directions. The land use planning system that we’ve constructed doesn’t work for them. There are millions of other stories out there with the same thread connecting them. There are probably plenty of people who’d want to live in El Segundo without a car and have lots of friends close by. There are many people that want to pursue artistic work that doesn’t pay well but enriches LA’s culture, who are needlessly punished by high housing costs. There are lots of people in the IE who don’t have families and would like to have a greater variety of social and cultural opportunities nearby.

Rigidly-defined land use planning forever locks neighborhoods, cities, and regions into the patterns chosen by a very small portion of people – usually very vocal opponents of any development other than single family homes. More importantly, it locks people into those patterns – it shapes and restricts their lives, their dreams & opportunities.

It’s long since time to dispel with the myth that everyone wants the same type of suburban family-oriented development, and that the desires of the people who do want that type of development should absolutely trump the hopes of everyone else. It’s also time to recognize that the social, economic, and cultural outcomes are what matter, not the built form of the city. SoCal is a big place; we have plenty of room to allow all kinds of development and for everyone to pursue their dreams.

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.

Where’s the IE Housing Boom?

LA needs a housing boom. That, we know beyond a doubt.

However, housing is a regional market, and the SoCal market includes the Inland Empire, which has historically been an outlet for housing demand in LA County and Orange County. The IE does have some apartment development, but it’s best known for its single-family residence (SFR) subdivisions, where houses are considerably cheaper than in LA-OC.

SFR construction in the IE is probably a pretty low priority for most urbanists, but there’s a pretty good case it’s not a bad thing. For one, growth in the IE provides at least some measure of new housing to check price and rent increases in LA-OC. Second, The IE is projected to be one of California’s fastest growing employment centers, and those folks will need housing close to where they work. Last, given how much of the IE is already developed, many projects are effectively suburban infill. Since regional density is more important than local density in determining vehicle miles traveled (VMT) per capita, one of the best ways to reduce VMT per capita is for the IE to look more like LA.

If you went back to 2012 or 2013 and asked housing market watchers, they likely would have expected more growth in SFR construction in places like the IE by today. (Some little corners of Twitter can hardly wait to shove an SFR boom in people’s faces; you know who you are.) To be honest, I expected suburban growth in the IE to have returned full force, and ended all the speculation about the death of the suburbs. That expectation was not based on supposed Millennial housing preferences or demographic shifts or gas prices or anything like that, but on land use policy realities: people would move to where housing was cheap, and housing would be cheap in the IE because it’s so much easier to build new SFRs there than to redevelop land in LA-OC.

Despite steadily increasing prices, though, there’s no sign of an SFR boom. Calculated Risk has the run down on housing starts at the national level as of September. Happily, after tapering off earlier this year, multifamily starts have picked back up. Single-family starts are still lower than at any time since 1969 except the brief, sharp recession of 1981-1982, and are only increasing slowly despite over 6 years of very low construction levels.

This is true at the local level too. While multifamily starts in LA-OC are at least back to prerecession levels (though still much lower than in the 1980s, and they need to be even higher than that), SFR starts are incredibly lame: less than 1,000 permitted per month, worse than even the early 1990s recession that pummeled SoCal’s economy. You could, to some extent, argue that’s about land: the only places in LA-OC with any appreciable amount of land for SFR construction are Irvine and the Antelope Valley, and Irvine actually does have an honest-to-goodness boom. The Antelope Valley is too far from job growth centers; its boom in the 1980s was related to the local defense industry, and SFR construction there is practically non-existent today as there is no price support.

LA-OC total starts

On the other hand, there’s plenty of land in places like Ontario and Fontana, both for large master plans of the type that exploded in Eastvale in the 2000s, and for small infill subdivisions. Lack of suitable sites is not the issue. And yet, SFR construction in the IE is going nowhere.

IE total starts

The IE economy was badly damaged by the recession, but job growth has resumed and passed the prerecession peak.

IE job growth

In addition, LA-OC has had fairly strong job growth, which should create spillover effects in the IE housing market.

LA-OC job growth

But IE housing construction is very weak. Why is this?

The new SFRs that are being produced are high end houses. Bloomberg reports that nationally, starter homes are increasingly beyond young people’s grasp. Anecdotally, keeping an eye on what the suburban home builders are offering, you almost can’t find any new construction in Eastvale, Chino, Ontario, Fontana, or Jurupa Valley for under $400,000. In a region with a median household income of about $55,000, that is a luxury product. If you want to find new construction below $300,000, you’ll have to go to Menifee, Perris, or places east of the 215, which is impractical if you work in LA-OC.

This situation is perhaps even more surprising given that the IE has had no real wage growth. It’s not like people are making lots more money and looking to buy bigger.

IE wages

The lack of cheaper SFR construction has been attributed to just about everything under the sun, from materials costs to labor costs, from tight lending conditions to municipal reluctance to permit cheaper housing, from Millennial preferring cities to home builders preferring to target the top of the market. Whatever the cause, so long as SFR construction in the IE remains weak, it is even more imperative that we solve our housing construction issues in LA-OC, to keep the region from becoming ever more unaffordable.

People Move to Suburbs Because They’re Cheap, Volume 1

As part of trying to keep track of larger trends, I’m following the suburban development homes being offered by the major builders. Partly, this is because others (like Curbed) are already keeping good tabs on development in LA County. But also, urban redevelopment projects tend to be more unique, depending on the specific developer goals, location, land costs, difficulty of permitting, and so on. In the suburbs, we can look at projects in different communities by the same developer, which makes it easier to compare costs across communities, or we can look at projects in the same community by different developers, which makes it easier to compare developers.

In this post, I’m going to take a quick look at some different developments by D.R. Horton, which as of late February has 33 developments in some stage of progress in LA, Orange, San Bernardino, Riverside, and Imperial Counties. Of these, 19 were in Riverside County, highlighting the uneven nature of the recovery. Note, D.R. Horton doesn’t put prices for all models on their website, so I’m making some reasonable assumptions indicated by with a ~, e.g. assuming that “high 200s” is about $290,000.

Now, you can get different customizations and finishes, but the big home builders are basically working off a few common plans they’ve developed. Peruse D.R. Horton and you’ll see a 2,798 SF option pop up regularly, priced as follows:

  • Indio (Mountain Estates): ~$315,000
  • Murrieta (Iris): ~$385,000
  • Temecula (Morgan Heights): ~$500,000
  • Eastvale (Noble): $550,400

Those are all in Riverside County.

Nothing too surprising here. Temecula is closer to San Diego County than Murrieta. Eastvale is one of the closest Riverside County cities to Orange County. Indio is the suburban fringe of the Coachella Valley. In other words, location matters, just like you’d expect.

There’s a common thread of urbanist thought that goes something like “operating a car costs about $8,000/yr, so you can afford to pay more for housing if you live in a place where you don’t need a car”. This has been extended to suggest that banks should consider household transportation costs when deciding if they should make loans, i.e. if household needs one less car, they can afford a larger loan. And indeed, the difference between Murrieta and Temecula at current 30-year fixed rates (4.35%) is about $6,950 per year – about the same as the cost of operating a car.

So let’s say that living in Temecula instead of Murrieta would let one person in the family bike to work instead of drive, allowing the family to get rid of a car. Why wouldn’t a bank give the family a larger mortgage to buy the same house in that case?

Because it’s a 30-year loan, and few people work in the same place for 30 years. If the person working in Temecula in the family living in Temecula loses his/her job and finds a new one in Menifee, now the family needs another car. Or, if the person loses his/her job and can’t find a new one, there’s no way for the family to quickly reduce its fixed expenses. If the person working in Temecula in the family living Murrieta loses his/her job and can’t find a new one, the family could reduce fixed expenses pretty quickly by selling a car. Simply put, it would be crazy for a bank to make a 30-year loan that depends on transportation costs being stable.

To finally reach my point, the real tradeoff that you make when you decide to live closer to the city is housing size: you accept a smaller dwelling in order to be closer. For example, you could get a 2,414 SF house in Fontana for around $390,000, or you could get an 1,851 SF townhouse in Rancho Cucamonga for about the same price. Of course, this pattern is distorted by zoning and other things like Prop 13, which encourages communities to try to drive up housing prices.

If you look at things on a per SF basis, prices increase as you move towards the more desirable areas, and there will be thresholds at which more expensive types of construction become feasible. While prowling around Save Marinwood and Quiet and Safe San Rafael, I found a presentation by John Burns that gives relative costs of construction: about $60/SF for SFR, about $90/SF for garden apartments, and about $200/SF for podium construction.

D.R. Horton’s most affordable properties, in Adelanto and Imperial, are selling for about $100/SF, around 165% of construction costs. Assuming that zoning allows for it, and market conditions and regulation don’t favor buying over renting, that means garden apartments become economic when prices hit about $150/SF, and podiums when prices hit about $330/SF.

The threshold for garden apartments is pretty low; based on D.R. Horton’s SFR pricing, they already make sense in places like Fontana and Murrieta. Podium construction has a higher threshold; Santa Clarita is getting close, but only LA and Orange County pencil out. Note that this is a gross simplification. Small (1-2 person) households often don’t want dwellings as large as SFRs. In a place like Adelanto, a lot of single people could be accommodated in things like garage apartments, let rooms, and so on, if permitted. At small dwelling unit sizes, prices don’t scale linearly because of fixed costs like bathrooms and kitchens, which are more expensive per SF than bedrooms or living rooms.

However crude it is, this analysis is consistent with the expectation that there is a logical progression of densities as you approach more desirable areas: SFRs to garden apartments to podiums.

I should point out that by this logic, high-rise construction doesn’t make sense until prices go above about $500-$600/SF – a level that only some places in LA have reached. Not to beat a dead horse, but I feel compelled to again emphasize that the debate is not about the aesthetics of mid-rise versus high-rise construction. It is affordability versus unaffordability. If your vision is high-rises instead of mid-rises, your vision is an unaffordable Los Angeles. There’s no two ways about it.

LA Land Use Patterns Help Reduce VMT

Sometimes you find things in the darnedest places. While reading Randal O’Toole’s testimony on Washington’s Growth Management Act (spoiler: he’s opposed), I see he references work by David Brownstone down at UC Irvine:

As University of California (Irvine) economist David Brownstone concluded after thoroughly studying this issue, the link between land uses and driving is ‘too small to be useful’ in attempting to save energy or reduce emissions.

Hmm, as someone they tell me was a Great Communicator used to say: trust, but verify. So let’s see what Brownstone has to say in his most recent paper:

The estimation results indicate that residential density has a statistically significant but economically modest influence on vehicle usage, which is similar to that in previous studies. However, the joint effect of the contextual density measure (density in the context of its surrounding area) and residential density on vehicle usage is quantitatively larger than the sole effect of residential density. Moving a household from a suburban to an urban area reduces household annual mileage by 18%.

I’ll leave you to speculate as to why O’Toole would cite authoritative sounding sources that, on closer review, clearly do not say what he would like you to think.

Nevertheless, the result of the Brownstone paper is very important: density on the census block level has a relatively small impact on vehicle miles traveled (VMT). Regional effects dominate. In other words, density is much more important on the regional scale than the local scale. If you want to decrease VMT, you need to increase regional density, not just build TOD projects at transit stations.

This study lends support to things we’ve explored from an intuitive perspective before (and data is almost always better than intuition). It explains how places like LA and Orange County can show up in lists of lowest household gasoline use* – even if you have to drive, you never have to drive very far. And it also shows a possible way forward for a region that shows up on lists of highest household gasoline use – the IE. Rather than focus on building TOD projects near transit stations, officials in the IE should upzone everywhere. They should allow things like Palms-style apartments and redevelopment of Cudahy-style lots the way they’ve been redeveloped in their namesake city. Because while the IE will probably never be able to emulate New York City’s travel patterns, it could certainly emulate LA’s.

*Note: 7 of the 10 worst gas guzzling cities are in the South (excluding Texas), which also makes sense in the context of my post on suburb types.