Real Estate

Clueless in Sacramento

By From page HS4 | April 11, 2014

It is a fascinating phenomenon how often elected leaders can openly profess their commitment for one thing and do the complete opposite. Three recent examples are: State Sen. Leland Yee, a long-time gun control advocate, recently indicted on illegal arms trafficking; Sen. Ron Caldera, now under federal indictment for bribery who supported increased ethics legislation while chairman of the finance and banking committee; and Sen. Ron Wright, a former community activist, now awaiting sentencing on voter fraud and bribery conviction.

Hypocrisy is an art form for many of our elected leaders. That’s why it caught my attention when I read in a local paper that “housing affordability” was now going to be a priority with our new state Assembly leader Toni Atkins. With respect, much of the credit for our unaffordable housing belongs to local and state government.

Every year our state Legislature passes new laws and regulations that increase the cost of housing. Low flush toilets to the type of light bulb that a builder can use in a lighting fixture are regulated by the state. Taken individually, like the California’s sprinkler law which mandates fire sprinklers are built into every home, they are worthy but that cost increase of $5,000 to $7,000 is layered on top of other worthy laws adding thousands more to the cost of building a new home.

Builders must also pass along the cost of local mitigation fees which, according to research firm Duncan and Associates, are 90 percent higher than the next most expensive state and 265 percent higher than the norm among jurisdictions that levy such fees. All these building regulations and fees are driving the price of a new home through the roof. That’s a problem for a state that most housing economists agree needs to build about 100,000 new homes a year in order to keep up with population growth and household formation.

“The biggest economic problem California has is that housing is too expensive,” said Christopher Thornberg, founding partner at Beacon Economics in Los Angles. “This is a state that desperately needs to increase its supply of housing relative to its population and population growth.”

But we are not. Between 1954 and 2006 California builders built an average of about 125,000 new single family homes every year. The last seven years have averaged less than 30,000. This year will likely be lower. The lack of new home construction has contributed to our lackluster re-sale market. More folks would likely sell their home and move into a new home if the selections were available at affordable prices.

While resale prices are still 35 percent below their 2005 peak, new home prices are at and, in some areas of the state, above their 2005 peak. Sticker-shocked new homebuyers are asking why.

Our excessive new housing costs are not the result of a shortage of land. The state has a huge amount of land suitable for building and our population density (people per square mile) is less than Ohio. Population density for El Dorado County, at 106 people per square mile, is half the national average.

In addition to undeveloped land we have ready-to-go building lots. The submitters of the proposed no-growth ballot initiatives would have us believe that the county has mor than 15,000 buildable lots already approved for new homes. If that were so, supply can’t be a road block to building affordable new homes.

Building materials and labor costs are no longer significantly different from other areas of the country. Labor and materials to build a new home in Medford, Ore., or Spokane, Wash., is about what they are in El Dorado Hills but the average new home in El Dorado Hills is 60 percent higher.

So what’s really driving up the cost of housing in California? Many economist believe that state and local government are responsible for creating a chronic housing shortage and the largest contributing factor in making homes unaffordable for the majority of Californians.

In his book “Out of Reach 2014,” Barry Zigas, director of housing policy for the Consumer Federation of American writes: “California real estate is among the most expensive in the county not because the developers are ‘greedier’ than developers in the rest of the country, it is because California’s restrictive land use polices artificially inflate the cost of developable land.”

A landmark study by economist Edward Glaeser of the Harvard Kennedy School of Government states, “Zoning restrictions, mandated open space and an anti-growth sentiment are the biggest factors driving up home prices.

“There’s plenty of land in California but political popular anti-growth polices place most of it off-limits. Californians don’t want more neighbors, even if it means lower income for themselves and that their children will live in Victorville or Las Vegas.”

Consider that in 2013 more new homes were built in Houston, Texas, than in all of California. Building fees are more in El Dorado Hills than what it cost to build an entire 2,200-square-foot home in Texas.

State tax policy and regulations has already forced good California companies like Tesla Motors and Intel to expand their plant manufacturing out of state. Government’s overly zealous good intentions and political expediency is putting the building industry on notice they could be next. There will never be “affordable” housing in California for, “We have met the enemy and he is us.” — Pogo.

Ken Calhoon is a local real estate broker and can be reached at [email protected]

Ken Calhoon

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