How California Became America’s Housing Market Nightmare

[Sun Belt]

How California Became America’s Housing Market Nightmare
Noah Buhayar and Christopher Cannon
November 6, 2019
Bloomberg

California, the land of golden dreams, has become America’s worst housing nightmare. Recent wildfires have only heightened the stakes for a state that can’t seem to build enough new homes.

The median price for a house now tops $600,000, more than twice the national level. The state has four of the country’s five most expensive residential markets—Silicon Valley, San Francisco, Orange County and San Diego. (Los Angeles is seventh.) The poverty rate, when adjusted for the cost of living, is the worst in the nation. California accounts for 12% of the U.S. population, but a quarter of its homeless population.

How did we get here? Simply put, bad government—from outdated zoning laws to a 40-year-old tax provision that benefits long-time homeowners at the expense of everyone else—has created a severe shortage of houses. While decades in the making, California’s slow-moving disaster has reached a critical point for state officials, businesses and the millions who are straining to live there.

Bloomberg

Some take aways:

1] CA has the highest poverty rate when adjusted for cost of living.
2] CA needs 3.5 million new homes, right now.
3] Cost Burden: CA has the highest share of households spending more than 30% of their income on housing.
4] CA has held the second highest home prices for decades [only behind Hawaii, for obvious reasons]
5] The cost burden hits all income brackets.
6] Job growth exceeds the growth of the housing supply. The Bay Area saw 5.4 new jobs for every unit of housing it built between 2011 and 2017.

[bossabreezes]

How much of this crisis is caused by NIMBYs? Like 95%?

I am still not sure if this is all NIMBY caused or if it has to do with high cost of business and regulation, leaving little return for developers.

I understand places like the Bay (especially the peninsula) and San Diego are quite conservative when it comes to upzoning, which is odd, due to the region's uber liberal population.

Oakland could really take advantage of this housing crisis and up zone it's entire western half and absorb a good 150,000 people, but BART will need significant help to deal.

[Crawford]

Originally Posted by bossabreezes

I understand places like the Bay (especially the peninsula) and San Diego are quite conservative when it comes to upzoning, which is odd, due to the region's uber liberal population.

It's not odd, it's logical. Why would existing homeowners not wish to protect their wealth, and why would they wish to change their neighborhoods? And what does "uber-liberalism" have to do with anything?

San Diego and Silicon Valley are hardly "uber-liberal", BTW.

[bossabreezes]

Originally Posted by Crawford

It's not odd, it's logical. Why would existing homeowners not wish to protect their wealth, and why would they wish to change their neighborhoods? And what does "uber-liberalism" have to do with anything?

San Diego and Silicon Valley are hardly "uber-liberal", BTW.

''Housing for All''
''Free Healthcare''
''Everyone is equal'' ect.

The Bay Area is famous for being super far left swinging, and this generally means that people favor more left leaning policies, like universal healthcare and government subsidies ect.

I understand why current homeowners wouldn't want more housing, obviously. But a good chunk of the voting population is renters, who would most certainly want more housing units constructed so their rents go down and have more housing options.

Also, sure- there are conservative areas of California. But they are the minority. To say otherwise is being intellectually dishonest. CA is one of, if not THE most reliably liberal states in the country.

[Crawford]

Originally Posted by bossabreezes

''Housing for All''
''Free Healthcare''
''Everyone is equal'' ect.

The Bay Area is famous for being super far left swinging, and this generally means that people favor more left leaning policies, like universal healthcare and government subsidies ect.

I understand why current homeowners wouldn't want more housing, obviously. But a good chunk of the voting population is renters, who would most certainly want more housing units constructed.

You're conflating all sorts of things.

Most of California isn't "liberal" and even most liberals don't support "housing for all" and "free healthcare". Yes, obviously most believe in equality, but that isn't a liberal take.

The Bay Area isn't "super left". SF, Oakland and Berkley are "super left". Silicon Valley, which has the crazy home prices, is politically moderate. Actually the super left areas are some of the most affordable areas. Even lefty-leaning Marin has lagged, because it doesn't have tech.

There are more homeowners than renters. Why would homeowners want cheaper housing? My aunt in Coastal CA, a retired nurse, has a modest oceanfront house that's probably worth $4 million. You think she's crying about her home values? Maybe she should have bought in Cleveland or Detroit back in the 70's, so her children and grandchildren would get nothing when she dies.

Also, she's in a traditionally conservative area that's very NIMBY and still has tons of Republicans (southern Orange County). I bet you the remaining Republicans are every bit as NIMBY as the liberals. Still tons of Republicans in places like Newport Beach and Dana Point, even a decent share of hard-core Trumpies.

[iheartthed]

Originally Posted by bossabreezes

''Housing for All''
''Free Healthcare''
''Everyone is equal'' ect.

The Bay Area is famous for being super far left swinging, and this generally means that people favor more left leaning policies, like universal healthcare and government subsidies ect.

I understand why current homeowners wouldn't want more housing, obviously. But a good chunk of the voting population is renters, who would most certainly want more housing units constructed so their rents go down and have more housing options.

Also, sure- there are conservative areas of California. But they are the minority. To say otherwise is being intellectually dishonest. CA is one of, if not THE most reliably liberal states in the country.

Silicon Valley is extremely libertarian. It's probably the most libertarian region in the entire country, and that ethos is integral to much of the tech industry. I would also generalize that California overall is more libertarian leaning than many places east of the Mississippi.

[Gantz]

Originally Posted by iheartthed

Silicon Valley is extremely libertarian. It's probably the most libertarian region in the entire country, and that ethos is integral to much of the tech industry. I would also generalize that California overall is more libertarian leaning than many places east of the Mississippi.

Really? What % does the Libertarian party even get in local CA elections? Do they even have ballot access in CA at all? At this point, I think the most libertarian state is probably New Hampshire, while Kentucky libertarians have the most sway in local elections.
Maybe in private, a lot of silicon valley types are libertarian, but they sure do not vote that way outside of maybe gay rights and drug legalization, which are closely aligned libertarian issues with the Democrats. Progressives have completely opposite view, especially on economic issues, compared to libertarians.

[Crawford]

Saying California is a "housing market nightmare" is like saying Apple is a "valuation nightmare". Homeowners are sitting pretty.

Most people are existing homeowners, obviously, and benefit from strong property values. You wish you bought in Palo Alto or Flint?

[CaliNative]

Originally Posted by Crawford

Saying California is a "housing market nightmare" is like saying Apple is a "valuation nightmare". Homeowners are sitting pretty.

Most people are existing homeowners, obviously, and benefit from strong property values. You wish you bought in Palo Alto or Flint?

The need of existing NIMBY homeowners for massive profits is trumped by the need of younger people for affordable housing. Like a monopolist trying to keep prices high by blocking competition. Pure self-centered anti-social "rent seeking" behavior. Besides, at some point demand will collapse and home prices will fall sharply as fewer buyers come in. Prices have reached bubble levels in the coastal markets. The only thing keeping prices levitating is low interest rates and fairly strong job markets. If rates rise & the economy slows, timber!

[Crawford]

Originally Posted by CaliNative

The need of existing NIMBY homeowners for massive profits is trumped by the need of younger people for affordable housing. Like a monopolist trying to keep prices high by blocking competition. Pure self-centered anti-social "rent seeking" behavior.

I'm not saying that CA's housing market is efficient or just, I'm simply saying it works very well for CA homeowners. Most people are self-interested and so probably don't see a problem.

I also think there's an argument that covering the coast in high density would be irresponsible, and would lower the quality of life for all Californians. The CA coast is 100x better than, say the FL coast, largely because of land use restrictions. Treasured places like Torrey Pines and Crystal Cove wouldn't exist without NIMBYs and heavy govt. regulation.

Also, the U.S. is a huge country where you can achieve a high quality of life in dozens of major metros. Not clear why you need to sacrifice some of the most beautiful and distinct parts of the country upon an altar of "this must be as cheap as Columbus or there's a problem". People who want cheap, big homes with poor long-term valuation, and laissez-faire regulation, already have 80% of the country.

[Trae]

Originally Posted by Crawford

I'm not saying that CA's housing market is efficient or just, I'm simply saying it works very well for CA homeowners. Most people are self-interested and so probably don't see a problem.

I also think there's an argument that covering the coast in high density would be irresponsible, and would lower the quality of life for all Californians. The CA coast is 100x better than, say the FL coast, largely because of land use restrictions. Treasured places like Torrey Pines and Crystal Cove wouldn't exist without NIMBYs and heavy govt. regulation.

Also, the U.S. is a huge country where you can achieve a high quality of life in dozens of major metros. Not clear why you need to sacrifice some of the most beautiful and distinct parts of the country upon an altar of "this must be as cheap as Columbus or there's a problem". People who want cheap, big homes with poor long-term valuation, and laissez-faire regulation, already have 80% of the country.

You don't need to even build up the coast, although a few blocks inland in some areas could definitely see increased density. You don't really hear about a housing crisis in Florida. There it's more about low incomes for service workers and entry level professionals. California has the worst of both worlds right now.

Nobody is saying it must be as cheap as Columbus, but if residential was built as proposed instead of being cut in half, maybe some $3000 units would be $2500, or the older unit going for $1800 due to no competition would instead be $1400, etc. Every dollar counts for those going paycheck to paycheck, and California has plenty of those people. Many of them are natives that grew up in the area. It's a shame people can't afford to live where they grew up out here, unless they're in the Central Valley.

Even going further than that, there's no reason why teachers have to commute 2hr+ into SF because they can't afford housing near the city they work. If they move out of state, who is going to teach the kids? My girlfriend used to take the train from the Inland Empire to Orange County and it was full of teachers and service workers that are there to serve the mostly higher dollar Orange County population. Which funny enough, Orange County has built a ton of housings especially in the southern parts. They were actually really liberal with that, but because it's OC they all start in around $800k+ and are little boxes made of ticky tacky. It was only a few years ago that OC finally had a new residential highrise in Santa Ana.

That should be the future of California. You should start seeing more highrises inland and a few sprinkled along the coast in specific areas (Santa Monica, Long Beach, Newport Center/Fashion Island, etc. These should complement the redevelopment of suburban strip centers in areas with density. We talk about protecting the coast, but how is a suburban style shopping center like this one protecting the coast? The state just needs to build up where there are already mid/high-rises.

[Crawford]

Originally Posted by Trae

We talk about protecting the coast, but how is a suburban style shopping center like this one protecting the coast? The state just needs to build up where there are already mid/high-rises.

I know this area pretty well. I bike it every winter. The Irvine Company owned most of Crystal Cove, and wanted to cover it in high density condos. Wealthy NIMBYs pushed back hard.

Almost all the land was permanently protected, but they were allowed to build some low-scale, low density stuff (Resort at Pelican Hill, that PCH shopping center, and $5-$10 million homes in the hills). To me, that's a lot better than Florida-style growth, where you build giant highrise condos everywhere, and it's just as autocentric, so it ends up as dense sprawl.

Granted, the FL coast isn't as scenic as the CA coast. And no one who isn't wealthy has a shot of living anywhere near Crystal Cove.

[sopas ej]

Originally Posted by Trae

We talk about protecting the coast, but how is a suburban style shopping center like this one protecting the coast? The state just needs to build up where there are already mid/high-rises.

I really hate that part of Newport Beach; nice coastline, marred by tacky shopping center. It looks like Irvine by the beach. I remember when this part of the coast was all undeveloped and looked really nice.

I really like the historic district of Crystal Cove, though. I believe years ago, there were plans to destroy these old small beach cottages for tacky huge development. Now, it's possible to stay/visit here: https://www.crystalcovestatepark.org...oric-district/

And coincidentally, I just saw this article, from KPCC AirTalk with Larry Mantle:

Southern California Votes For More Housing In Coastal Areas. What Now?


The Southern California Association of governments voted this week in favor of a plan that pushes for more coastal housing instead of expanding communities inland. POOL/GETTY IMAGES

Link: https://www.scpr.org/programs/airtal...using-in-coas/

[ocman]

Originally Posted by CaliNative

The need of existing NIMBY homeowners for massive profits is trumped by the need of younger people for affordable housing. Like a monopolist trying to keep prices high by blocking competition. Pure self-centered anti-social "rent seeking" behavior.

I love how they spin it too. As if blocking housing in their neighborhood is really in line with their progressive, liberal ideals for “local control” and “preservation” and they're really about thinking of the poor who could be displaced, and they’re just against greedy developers. It’s definitely not about traffic or keeping the value of their house about $1M. Or getting outrageous appreciation of their home value every year.

[bossabreezes]

CA homeownership rate is about 55%, which is low. If you go to urban areas, it's most certainly lower than half. So this argument doesn't really hold.

[Crawford]

Originally Posted by bossabreezes

CA homeownership rate is about 55%, which is low. If you go to urban areas, it's most certainly lower than half. So this argument doesn't really hold.

Homeowners vote much more than renters. They're also older and much more politically engaged.

Yes, if CA eventually became renter dominated, like NYC, the dynamics might change. But keep in mind that NYC is super-NIMBY too. The renters apparently hate tall buildings too.

[bossabreezes]

That sounds like your opinion rather than a fact.

If homeowners voted much more than renters, 99% of my peers shouldn't have had the ''Voted'' sticker on their chest on Tuesday.

Anyway, I asked about the reason for this housing shortage and we're splitting hairs and getting nowhere. There clearly is a problem with a housing shortage, see the homeless camps everywhere in CA. Would like to understand the reason behind this rather than discuss the republican pockets of CA or why calling California liberal is wrong.

[suburbanite]

Originally Posted by bossabreezes

Anyway, I asked about the reason for this housing shortage and we're splitting hairs and getting nowhere. There clearly is a problem with a housing shortage, see the homeless camps everywhere in CA. Would like to understand the reason behind this rather than discuss the republican pockets of CA or why calling California liberal is wrong.

I doubt homeless camps are the primary indicator of a housing shortage. I think it's more people working in the Bay Area making $130k+ living with 4 roommates. California may be a massive state, but the most desirable areas are still geographically constrained. If tech companies wanted to locate in Fresno or Bakersfield instead of Palo Alto, housing affordability would likely be far less of an issue. As it stands, there is a long-time contingent of wealthy and powerful homeowners that have little to gain from supporting intensification of their neighbourhoods with mixed-use, medium/high-density projects.

I don't know Los Angeles as well, but I know BART has done a pretty good job of incentivising private investment into exurban transit stations that bring a drastic uplift in value to the surrounding land. I've used a couple of examples there as case studies for similarly structured deals here in the GTA. Unless the State is going to implement some sort of mechanism to overrule local zoning disputes, I see developments like this one in West Dublin/Pleasanton being the primary method of adding large numbers of units.



There are over 1,500 units in this photo and it's about a 45-minute train ride to Downtown (according to Google Maps, never done the route myself). There's no existing layer of low-density residential full of NIMBY homeowners. Also, upzoning from medium-density like this to high-density in the future should be far less of a battle than going from SFH to 4-5 storey blocks.

[eschaton]

It's mostly NIMBYism, but not just that. Proposition 13 has also played a role. It means that unless a house changes hands, property taxes cannot go up by more than 2% per year - which is of course generally speaking not only lower than property appreciation, but lower than inflation.

The proposition was originally put into place in 1978 in part to ensure seniors would not be priced out of their homes. But it applies to all property equally, and ensures that if you've owned a property for decades, you will be paying very low property tax rates, eliminating most of the incentive to sell. IIRC you can even pass down houses in families without your children getting reassessed.

The result of this is it fucks up the California housing market. People who in other states might choose to downsize to smaller units - or move within the state - just stay put where they are for long periods of time. On average, homeowners in the major coastal cities stay put around three years longer than they would have otherwise, which doesn't sound like a lot, but it means a lot of units which could be taken up by the local workforce are just kept off the market entirely.

[muertecaza]

Originally Posted by suburbanite

I doubt homeless camps are the primary indicator of a housing shortage. I think it's more people working in the Bay Area making $130k+ living with 4 roommates. California may be a massive state, but the most desirable areas are still geographically constrained. If tech companies wanted to locate in Fresno or Bakersfield instead of Palo Alto, housing affordability would likely be far less of an issue. As it stands, there is a long-time contingent of wealthy and powerful homeowners that have little to gain from supporting intensification of their neighbourhoods with mixed-use, medium/high-density projects.

I don't know Los Angeles as well, but I know BART has done a pretty good job of incentivising private investment into exurban transit stations that bring a drastic uplift in value to the surrounding land. I've used a couple of examples there as case studies for similarly structured deals here in the GTA. Unless the State is going to implement some sort of mechanism to overrule local zoning disputes, I see developments like this one in West Dublin/Pleasanton being the primary method of adding large numbers of units.



There are over 1,500 units in this photo and it's about a 45-minute train ride to Downtown (according to Google Maps, never done the route myself). There's no existing layer of low-density residential full of NIMBY homeowners. Also, upzoning from medium-density like this to high-density in the future should be far less of a battle than going from SFH to 4-5 storey blocks.

Excellent and insightful comment. Pretty wild though that the best solution we've come up with is building dense greenfield developments ~40 miles away and shipping people into cities by the train-full.