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Real Estate Round-Up: Housing affordability is tied to availability

 

Last updated 11/5/2018 at 9:31am



Earlier in October, I spent a week in Long Beach for the California Association of Realtors (CAR) board meeting where I have been a CAR director since 2011. We meet in specific committees to discuss topics that affect home ownership and property rights. For example, there are committees that discuss federal topics like the Taxation Committee or Transaction and Regulatory Committee, and other committees discuss topics that relate to state issues, like the Housing Committee or Environmental and Land Committee.

The topic discussed at nearly every committee and on no less than four forums was the topic of housing availability and housing affordability. The latter is directly tied to the first.

These challenges to housing have the greatest impact on the middle class, so the housing component with the highest priority has been named “the missing middle." These are homes for teachers, firefighters, police officers, nurses, etc. Many in these occupations cannot afford to own a home in the town in which they work, so they are driving hours to and from work daily. And you wonder why our traffic is so bad? Look no further than this example for your answer.

California needs to build 180,000 homes per year to meet California’s population growth. The problem is that the last time we met that number was in 2005. Only 123,000 new homes are projected to be built in 2018. California currently has a deficit of 3,000,000 homes. Yes, that’s what I said – 3 million! Yikes. So, what is standing in the way?

There are two key challenges to housing: Legislators and NIMBY’s.

Legislators, in the name of creating guidelines on zoning, planning, environmental and infrastructure, have created mountains of permits and requirements all partnered with a fee. Each guideline and fee, on its own, usually has merit. But when you combine them a builder receives 526 separate fees to build. Yes, that’s right, 526 separate fees. On the low end, those fees add an additional cost of $21,000 to the home. On the high end, those fees add an additional cost of $157,000 to the home.

Let’s dissect this a bit. Think of the homes in Horse Creek Ridge – the starting price point is in the $400,000s and the high side is in the $700,000s. Let’s split to the middle of the high and low of fees, which puts us at $89,000. Subtract that from $450,000 and you have a home priced at $361,000. Now that’s an opening price point home that the missing middle can afford. At the high end, the adjusted number would be under $650,000.

Another aspect of the legislative guidelines, and the permits and fees requirement, is the length of time to get through the process to finally be able to break ground. Guess how long it takes in California, on average, to be able to break ground on a major housing development. One year? No. Five years? Wrong again. It takes 15 years to be able to break ground. In Arizona, it takes four to six months. In Washington, it takes one year.

So here we are – California needs 180,000 homes per year but because we have consistently under produced, we have a deficit of 3,000,000 homes. Suppose we start the process today, each of those homes will have a base price of $89,000 with no land or structure or road or utilities and won’t be ready until 2033. For a reference point, Horse Creek Ridge began, in concept, in the late 1990s. This is unbelievable. How can we possibly catch up?

Changes can be made at the county level to expedite the entitlement process if the project complies with all existing laws to a “Bi-Rite” to build. This means if you can check off all the boxes, you should be able to jump directly to “Go.” Government-owned properties could be converted to “In-Fill” projects and approved with a “Bi-Rite” to build based on 20 percent of the project being for low income buyers. In San Diego County that equates to a $240,000 home/condo.

And finally, CEQA (California Environmental Quality Act) needs to be reformed so that there are no duplicate lawsuits filed, no anonymous lawsuits allowed, and the remedy is equal to the challenge. In other words, if the violation pertains to not enough open space, allow the developer to come back with a plan that increases the open space, decreases the number of units, and does not involve starting the entire process all over again. The fees also need to be adjusted.

Next week, I’ll write about NIMBY’s and how they are affecting the housing shortage.

Kim Murphy can be reached at kim@murphy-realty.com or (760) 415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.

 

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